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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2000
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- or -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission Number: 000-32139
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FLORIDAFIRST BANCORP, INC.
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(Exact name of Registrant as specified in its Charter)
State of Florida 59-3662010
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
205 East Orange Street 33801-4611
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (863) 688-6811
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Securities Registered Pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $ .10 par value
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES NO X (not subject to such filing
requirements for the past 90 days)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing price of the Registrant's Common Stock as
quoted on the Nasdaq National Market, on December 22, 2000, was $62.2 million.
(The exclusion from such amount of the market value of the shares owned by any
person shall not be deemed an admission by the registrant that such person is an
affiliate of the registrant.)
As of December 22, 2000, there were issued and outstanding 5,520,000 shares of
the Registrant's Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
PART I
Item 1. Description of Business
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General
On April 6, 1999, FloridaFirst Bank reorganized from a mutual savings
association into a mutual holding company named FloridaFirst Bancorp MHC and
formed FloridaFirst Bancorp, a middle-tier holding company, whereby FloridaFirst
Bank became a wholly-owned subsidiary of FloridaFirst Bancorp. In connection
with the reorganization, FloridaFirst Bancorp sold 2,703,851 shares of its
Common Stock to the public and the remaining 3,049,024 shares were held by
FloridaFirst Bancorp MHC.
On December 21, 2000, FloridaFirst Bancorp, Inc. (the "Company") completed its
stock offering in connection with the conversion and reorganization of
FloridaFirst Bank (the "Bank") and its holding company, FloridaFirst Bancorp,
from the mutual holding company form of organization to a full stock company. As
part of the conversion and reorganization, the shares formerly held by
FloridaFirst Bancorp MHC were cancelled, the Company sold 3,147,952 new shares
to the public and the shares held by stockholders of FloridaFirst Bancorp were
exchanged for 2,372,048 shares of the Company.
The Company provides commercial and retail banking services, with an emphasis on
one- to four-family residential mortgage loans, home equity loans and lines of
credit and consumer loans as well as certificates of deposit, checking accounts
and savings accounts. In addition, the Company originates commercial real estate
loans and offers checking accounts and other credit facilities to businesses
within its market area. At September 30, 2000, the Company had total assets,
deposits and equity of $582.2 million, $521.1 million, and $61.1 million,
respectively.
The Company attracts deposits from the general public and uses these deposits
primarily to originate loans and to purchase investment, mortgage-backed and
other securities. The principal sources of funds for the Company's lending and
investing activities are deposits, Federal Home Loan Bank ("FHLB") advances, the
repayment and maturity of loans and sale, maturity, and call of securities. The
principal source of income is interest on loans and investment and
mortgage-backed securities. The principal expense is interest paid on deposits
and FHLB advances.
Competition
The competition for deposit products comes from other insured financial
institutions such as commercial banks, thrift institutions, credit unions, and
multi-state regional banks in the Company's market area of Polk and Manatee
Counties, Florida. Deposit competition also includes a number of insurance
products sold by local agents and investment products such as mutual funds and
other securities sold by local and regional brokers. Loan competition varies
depending upon market conditions and comes form other insured financial
institutions such as commercial banks, thrift institutions, credit unions,
multi-state regional banks, and mortgage bankers and brokers.
Lending Activities
General. The Company primarily originates one-to-four-family residential real
estate loans, commercial real estate loans, consumer loans and other loans.
Consumer loans consist primarily of direct and indirect automobile loans, home
equity loans and lines of credit, and other consumer loans. The Company's
commercial real estate loans consist primarily of mortgage loans secured by
small commercial office/retail space, warehouses, small and medium sized
apartment buildings and residential real estate acquisition and development
projects.
1
Loan Portfolio Composition. The following table analyzes the composition of the
Company's loan portfolio by loan category and in percentages of the total loan
portfolios at the dates indicated.
At September 30,
-----------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------------- ------------------- ------------------ -------------------- -------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Type of Loans:
- -------------
Mortgage loans:
Residential:
Permanent.................. $304,419 66.1% $276,115 65.6% $244,667 68.3% $256,742 69.3% $247,609 73.7%
Construction............... 27,996 6.1 32,974 7.8 27,311 7.6 22,350 6.0 19,778 5.9
Multi-family................. 3,610 .8 5,787 1.4 4,464 1.2 4,154 1.1 4,564 1.4
Commercial real estate (1)... 30,709 6.6 21,157 5.0 17,217 4.8 12,282 3.3 8,562 2.5
Land......................... 12,886 2.8 9,548 2.3 6,796 1.9 6,153 1.7 779 .2
Consumer Loans:
Home equity loans (2)...... 28,926 6.3 22,545 5.4 13,137 3.7 18,310 4.9 18,361 5.5
Auto loans................. 40,717 8.8 42,181 10.0 34,795 9.7 43,504 11.7 30,911 9.2
Other...................... 11,396 2.5 10,318 2.5 9,959 2.8 7,415 2.0 5,311 1.6
------- ----- ------- ----- --------- ----- ------- ----- ------- -----
Total loans.................. 460,659 100.0% 420,625 100.0% 358,346 100.0% 370,910 100.0% 335,875 100.0%
===== ===== ===== ===== =====
Less:
Loans in process (3)....... 16,952 19,774 17,013 12,589 12,072
Deferred loan fees and
unearned interest........ - - 159 137 91
Allowance for loan losses.. 3,321 2,941 2,564 2,633 2,385
-------- -------- -------- -------- --------
Total loans, net............. $440,386 $397,910 $338,610 $355,551 $321,327
======== ======== ======== ======== ========
- --------------------
(1) Includes commercial loans of $2,533 in 2000, $1,374 in 1999, $1,083 in 1998
and $218 in 1997 which were not secured by real estate.
(2) Includes home equity lines of credit.
(3) Relates to construction loans.
2
Loan Maturity Schedule. The following table sets forth the maturity or repricing
of the Company's loan portfolio at September 30, 2000. Demand loans, loans
having no stated maturity, and overdrafts are shown as due in one year or less.
Commercial Home Auto and
Multi- real estate equity Other
Residential(1) family and land loans consumer Total
-------------- ------ -------- ----- -------- -----
(In thousands)
Amounts Due:
Within 1 Year............. $ 50,104 $ 567 $ 6,319 $ 6,369 $ 2,106 $ 65,465
-------- ------ ------- ------- ------- --------
After 1 year:
1 to 3 years............ 31,851 16 10,043 549 14,185 56,644
3 to 5 years............ 18,484 1,166 9,202 2,754 28,215 59,821
Over 5 years............ 231,976 1,861 18,031 19,254 7,607 278,729
-------- ------ ------- ------- ------- --------
Total due after one year.. 282,311 3,043 37,276 22,557 50,007 395,194
-------- ------ ------- ------- ------- --------
Total amount due.......... $332,415 $3,610 $43,595 $28,926 $52,113 $460,659
======== ====== ======= ======= ======= ========
- --------
(1) Includes $27,996 in construction loans.
The following table sets forth the dollar amount of all loans due after
September 30, 2001, which have pre-determined interest rates and which have
floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable rates Total
----------- ---------------- -----
(In thousands)
Residential........................ $ 233,101 $ 49,210 $282,311
Multi-family....................... 2,676 367 3,043
Commercial real estate and land.... 32,057 5,219 37,276
Home equity loans.................. 22,557 - 22,557
Auto and other consumer............ 50,007 - 50,007
--------- -------- --------
Total............................ $ 340,398 $ 54,796 $395,194
========= ======== ========
Residential Lending. The Company's primary lending activity consists of the
origination of one-to-four family residential mortgage loans secured by property
located in the Company's market area. The Company generally originates
one-to-four family residential mortgage loans in amounts up to 80% of the lesser
of the appraised value or selling price of the mortgaged property without
requiring private mortgage insurance. The Company will originate a mortgage loan
in an amount up to 95% of the lesser of the appraised value or selling price of
a mortgaged property, however, private mortgage insurance for the borrower is
required on the amount financed in excess of 80%. The Company originates
fixed-rate and adjustable-rate loans for retention in its portfolio. A mortgage
loan originated by the Company, whether fixed-rate or adjustable-rate, can have
a term of up to 30 years. Adjustable-rate loans limit the periodic interest rate
adjustment and the minimum and maximum rates that may be charged over the term
of the loan.
3
The majority of the Company's one-to-four family residential loans (both fixed
rate and adjustable rate) are underwritten in accordance with Fannie Mae
guidelines, regardless of whether they will be sold in the secondary market.
Substantially all of the Company's residential mortgages include "due on sale"
clauses, which give the Company the right to declare a loan immediately payable
if the borrower sells or otherwise transfers an interest in the property to a
third party.
Property appraisals on real estate securing the Company's single-family
residential loans are made by state certified and licensed independent
appraisers approved by the Board of Directors. Appraisals are performed in
accordance with applicable regulations and policies. The Company obtains title
insurance policies on all first mortgage real estate loans originated. Borrowers
generally advance funds, with each monthly payment of principal and interest, to
a loan escrow account from which the Company makes disbursements for such items
as real estate taxes and hazard insurance premiums and mortgage insurance
premiums as they become due.
Construction Lending. The Company is an active lender in the construction of
one- to four-family homes. The residential construction loans are made both to
individual homeowners for the construction of their primary residence and to
local builders for the construction of pre-sold houses or houses that are being
built for speculative purposes.
As of September 30, 2000, 80% of all the Company's residential construction
loans were made to individual homeowners. After the house is constructed, the
loan terms are modified to terms that apply to permanent residential loans. The
underwriting guidelines for the construction to permanent loans are the same as
the permanent loans, but additional construction administration procedures and
inspections are followed during the construction process to assure that
satisfactory progress is being made prior to funding the construction draw
requests.
Construction lending is generally considered to involve a higher degree of
credit risk than long term financing of residential properties. The Company's
risk of loss on a construction loan depends largely on the accuracy of the
initial estimate of the property's value at completion of construction and the
estimated cost of construction. If the estimate of construction cost and the
marketability of the property after the project is completed prove to be
inaccurate, we may be compelled to advance additional funds to complete the
construction. Furthermore, if the final value of the completed property is less
than the estimated amount, the value of the property might not be sufficient to
assure the repayment of the loan.
The Company limits its exposure for construction loans made to local builders
through periodic credit analysis on the individual builder and a series of
inspections throughout the construction phase. In addition, the Company limits
the amount and number of loans made to an individual builder for the
construction of pre-sold and speculative houses based on the financial strength
of the builder. At September 30, 2000, approximately 20% of the Company's
construction loans are to local builders.
Commercial Real Estate and Other Loans. The Company originates commercial real
estate mortgage loans and loans on multi-family dwellings and developed and
undeveloped land. The Company's commercial real estate mortgage loans are
primarily permanent loans secured by improved property such as office buildings,
retail stores, commercial warehouses and apartment buildings. The terms and
conditions of each loan are tailored to the needs of the borrower and based on
the financial strength of the project and any guarantors. The average loan size
is approximately $260,000 and typically are made at fixed rates of interest with
five to ten year maturities, at which point the loan is repaid or the terms and
conditions are renegotiated. Essentially all originated commercial real estate
loans are within the Company's market area and all are within the State of
Florida. The Company's largest commercial real estate loan had a balance of $1.6
million on September 30, 2000 and was secured by a warehouse building.
Typically, commercial real estate loans are originated in amounts up to 80% of
the appraised value of the mortgaged property.
4
Commercial real estate, multi-family and land loans generally have a
significantly greater risk than that which is involved with single family real
estate lending. The repayment of these loans typically depends on the successful
operations and income stream of the commercial real estate and the borrower.
Such risks can be significantly affected by economic conditions. In addition,
commercial real estate lending generally requires substantially greater
oversight efforts compared to residential real estate lending.
Commercial Banking. To accomplish its mission to become a full service community
bank, the Company has expanded its products and services offerings to the small
to medium size businesses within its market area. Experienced personnel have
been added within the past year and the Company's plans call for the hiring of
additional personnel over the next few years to assist in reaching its
objectives. New sales call programs, credit analysis guidelines, loan grading
systems, technology upgrades and new products and services either have been
implemented or are in the process of implementation. The Company plans to
satisfy not only the borrowing needs of new prospective business customers, but
plans to have the full complement of deposit services and customer services
related to the checking, savings, and cash management needs of these businesses.
Unlike residential mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment and other income
and which are secured by real property with a value that tends to be more easily
ascertainable, commercial business loans typically are made on the basis of the
borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of commercial
business loans may be substantially dependent on the success of the business
itself, which is likely to be dependent upon the general economic environment.
The Company's commercial business loans are sometimes, but not always, secured
by business assets, such as accounts receivable, equipment and inventory, as
well as real estate. However, the collateral securing the loans may depreciate
over time, may be difficult to appraise, and may fluctuate in value based on the
success of the business.
The Company recognizes the generally increased risks associated with commercial
business lending. The Company's commercial business lending policy emphasizes
the following:
o credit file documentation,
o analysis of the borrower's capacity to repay the loan,
o adequacy of the borrower's capital and collateral,
o analysis of the borrower's character, and
o evaluation of the industry conditions affecting the borrower.
Analysis of the borrower's past, present and future cash flows is also an
important aspect of the Company's credit analysis. The Company plans to expand
its commercial business lending, subject to market conditions.
The Company generally obtains annual financial statements from borrowers for
commercial business loans. These statements are analyzed to monitor the quality
of the loan. As of September 30, 2000, the commercial business loans ranged from
$2,000 to $4.0 million, with an average balance outstanding of $35,000. With the
exception of two loans totaling $45,000, all such loans are current and have
performed in accordance with their terms. The Company has provided a specific
reserve for $45,000 for the two delinquent loans because recovery of any amount
is highly unlikely.
5
Consumer Loans. Consumer loans consist primarily of direct and indirect auto
loans and home equity loans and credit lines. The Company also originates
unsecured lines of credit, loans secured by savings accounts and other consumer
loans. Consumer loans are originated in the Company's market area and generally
have maturities of up to 10 years. For savings account loans, the Company will
lend up to 90% of the account balance.
Consumer loans have a shorter term and generally provide higher interest rates
than residential loans. The consumer loan market can be helpful in improving the
spread between average loan yield and costs of funds and at the same time
improve the matching of the rate sensitive assets and liabilities.
Consumer loans entail greater risks than one- to four-family residential
mortgage loans, particularly consumer loans secured by rapidly depreciable
assets such as automobiles or loans that are unsecured. In such cases, any
repossessed collateral for a defaulted loan may not provide an adequate source
of repayment of the outstanding loan balance, since there is a greater
likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections depend on the borrower's continuing financial
stability, and therefore are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Even for consumer loans secured by real
estate the risk to the Company is greater than that inherent in the single
family loan portfolio in that the security for consumer loans is generally not
the first lien on the property and ultimate collection of amounts due may depend
on whether any value remains after collection by a holder with a higher priority
than the Company. Finally, the application of various federal laws, including
federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered on such loans after a default.
At September 30, 2000, 59% of the Company's automobile loans outstanding were
loans originated through local automobile dealerships. Although this type of
lending generally carries a greater risk factor, the Company has experienced
personnel to handle this type of lending. The dealer arrangements are limited
primarily to a few local dealers where long term relationships have been
established and the loans acquired typically are those made to higher credit
quality borrowers.
The underwriting standards employed by the Company for consumer loans include a
determination of the applicant's credit history and an assessment of the
applicant's ability to meet existing obligations and payments on the proposed
loan. The stability of the applicant's monthly income may be determined by
verification of gross monthly income from primary employment, and additionally
from any verifiable secondary income. Creditworthiness of the applicant is of
primary consideration; however, the underwriting process also includes a
comparison of the value of the collateral in relation to the proposed loan
amount.
Loan Solicitation and Processing. The Company's customary sources of mortgage
loan applications include repeat customers, walk-ins, and referrals from home
builders and real estate brokers. Commercial customer relationships are
developed through the officer call program and from referrals developed through
the branch network.
After receiving a loan application from a prospective borrower, a credit report
and verifications are ordered to confirm specific information relating to the
loan applicant's employment, income and credit standing. An appraisal of the
real estate intended to secure the proposed loan is undertaken by an independent
fee appraiser. In connection with the loan approval process, the Company's staff
analyze the loan applications and the property involved. Officers and lenders
are granted lending authority based on the loan types that they work with and
their level of experience. Generally, a management loan committee approves loans
exceeding individual authorities, with the Executive Committee approving loans
between $500,000 and $1 million, and the full Board of Directors approving loans
in excess of $1 million.
6
Loan applicants are promptly notified of the decision of the Company by a letter
setting forth the terms and conditions of the decision. If approved, these terms
and conditions include the amount of the loan, interest rate basis, amortization
term, a brief description of real estate to be mortgaged to the Company, tax
escrow and the notice of requirement of insurance coverage to be maintained to
protect the Company's interest. The Company requires title insurance on first
mortgage loans and fire and casualty insurance on all properties securing loans,
which insurance must be maintained during the entire term of the loan.
Loan Commitments. The Company generally grants commitments to fund fixed and
adjustable-rate single family mortgage loans for periods of 60 days at a
specified term and interest rate. The total amount of the Company's commitments
to extend credit as of September 30, 2000 was $886,000.
Loan Origination and Other Fees. In addition to interest earned on loans, the
Company may charge loan origination and commitment fees for originating or
purchasing certain loans. Since most loans are originated without points being
charged, the Company has assessed customers certain fees related to underwriting
and document preparation. The Company believes these fees are just slightly
above the costs to originate the loans. Therefore, the net deferred fees are
minimal and deferrals have an immaterial effect on operating results.
The Company also receives other fees and charges relating to existing loans,
which include late charges and fees collected in connection with a change in
borrower or other loan modifications. These fees and charges have not
constituted a material source of income.
Non-performing Loans and Problem Assets
Collection Procedures. The Company's collection procedures provide that when a
loan is 15 days delinquent, the borrower is notified. If the loan becomes 30
days delinquent, the borrower is sent a written delinquency notice requiring
payment. If the delinquency continues, subsequent efforts are made to contact
the delinquent borrower. In certain instances, the Company may modify the loan
or grant a limited moratorium on loan payments to enable the borrower to
reorganize his financial affairs and the Company attempts to work with the
borrower to establish a repayment schedule to cure the delinquency. As to
mortgage loans, if the borrower is unable to cure the delinquency or reach a
payment agreement with the Company within 90 days, the Company will institute
foreclosure actions. If a foreclosure action is taken and the loan is not
reinstated, paid in full or refinanced, the property is sold at judicial sale at
which the Company may be the buyer if there are no adequate offers to satisfy
the debt. Any property acquired as the result of foreclosure or by deed in lieu
of foreclosure is classified as real estate owned ("REO") until such time as it
is sold or otherwise disposed of by the Company. When REO is acquired, it is
recorded at the lower of the unpaid principal balance of the related loan or its
fair market value less estimated selling costs. The initial writedown of the
property is charged to the allowance for loan losses.
As to commercial related loans, the main thrust of the Company's collection
efforts is through telephone contact and a sequence of collection letters. If
the Company is unable to resolve the delinquency within 90 days or in some
situations shorter time periods, the Company will pursue all available legal
remedies. The Company's commercial lenders are required to evaluate each
assigned account on a case-by-case basis, within the parameters of the Company's
policies.
Loans are reviewed on a regular basis and are placed on a non-accrual status
when they are more than 90 days delinquent. Loans may be placed on a non-accrual
status at any time if, in the opinion of management, the collection of
additional interest is doubtful. Interest accrued and unpaid at the time a loan
is placed on non-accrual status is charged against interest income. Subsequent
payments are either applied to the outstanding principal balance or recorded as
interest income, depending on the assessment of the ultimate collectibility of
the loan.
7
Non-Performing Assets. The following table provides information
regarding the Company's non-performing loans and other non-performing assets as
of the end of each of the last five fiscal years. As of each of the dates
indicated, the Company did not have any troubled debt restructurings within the
meaning of Statement of Financial Accounting Standards ("SFAS") No. 15.
At September 30,
-----------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Mortgage loans:
Residential ............................. $ 33 $ 581 $ 445 $1,624 $ 654
Multi-family ............................ - - - - -
All other mortgage loans ................ 638 103 - 491 491
Commercial loans .......................... 45 - - - -
Consumer loans:
Home equity loans ....................... - - - - -
Other consumer .......................... 46 146 391 199 39
------ ------ ------ ------ ------
Total ..................................... $ 762 $ 830 $ 836 $2,314 $1,184
====== ====== ====== ====== ======
Accruing loans which are contractually past
Due 90 days or more:
Mortgage loans:
Residential ............................. - - - - -
Multi-family ............................ - - - - -
All other mortgage loans ................ - - - - -
Consumer loans:
Home equity and second mortgages ........ - - - - -
Other consumer .......................... - - - - -
------ ------ ------ ------ ------
Total ..................................... $ - $ - $ - $ - $ -
====== ====== ====== ====== ======
Total non-performing loans ................ $ 762 $ 830 $ 836 $2,314 $1,184
====== ====== ====== ====== ======
Real estate owned ......................... $ 113 $ 15 $ 403 $ 67 $ 8
====== ====== ====== ====== ======
Other non-performing assets ............... $ 90 $ 188 $ 91 $ 104 $ 42
====== ====== ====== ====== ======
Total non-performing assets ............... $ 965 $1,033 $1,330 $2,485 $1,234
====== ====== ====== ====== ======
Total non-performing loans to net loans ... .17% .21% .25% .65% .37%
====== ====== ====== ====== ======
Total non-performing loans to total assets .13% .17% .20% .49% .27%
====== ====== ====== ====== ======
Total non-performing assets to total assets .17% .21% .32% .53% .28%
====== ====== ====== ====== ======
During the year ended September 30, 2000, approximately $29,000 of interest
would have been recorded on loans accounted for on a non-accrual basis if such
loans had been current according to the original loan agreements for the entire
period.
8
Classified Assets. Management, in compliance with regulatory guidelines, has
instituted an internal loan review program whereby loans are classified as
special mention, substandard, doubtful or loss. When a loan is classified as
substandard or doubtful, management is required to establish a valuation reserve
for loan losses in an amount that is deemed prudent. When management classifies
a loan as a loss asset, a reserve equal to 100% of the loan balance is required
to be established or the loan is to be charged-off. This allowance for loan
losses is composed of an allowance for both inherent risk associated with
lending activities and particular problem assets.
An asset is considered "substandard" if it is inadequately protected by the
paying capacity and net worth of the borrower or the collateral pledged, if any.
Substandard assets include those characterized by the distinct possibility that
the insured institution will sustain some loss if the deficiencies are not
corrected. Assets classified as doubtful have all of the weaknesses inherent in
those classified substandard, with the added characteristic that the weaknesses
present make collection or liquidation in full, highly questionable and
improbable, on the basis of currently existing facts, conditions, and values.
Assets classified as loss are those considered uncollectible and of such little
value that their continuance as assets without the establishment of a loss
reserve is not warranted. Assets which do not currently expose the insured
institution to a sufficient degree of risk to warrant classification in one of
the aforementioned categories but possess credit deficiencies or potential
weaknesses are required to be designated special mention by management. In
addition, each loan that exceeds $500,000 and each group of loans to one
borrower that exceeds $500,000 is monitored more closely due to the potentially
greater losses from such loans.
Management's evaluation of the classification of assets and the adequacy of the
allowance for loan losses is reviewed by the Board on a regular basis and by the
regulatory agencies as part of their examination process. At September 30, 2000
the classified assets were (in thousands):
Special mention.......................... $ 689
Substandard.............................. 1,388
Doubtful................................. -
Loss..................................... 45
------
Total............................... $2,122
======
Other Real Estate Owned. Real estate acquired by the Company as a result of
foreclosure or by deed in lieu of foreclosure is classified as other real estate
owned until such time as it is sold. When other real estate owned is acquired,
it is recorded at the lower of the unpaid balance of the related loan or its
fair value less disposal costs. Any write-down of other real estate owned is
charged to operations.
Allowance for Losses on Loans. It is the policy of management to provide for
losses on unclassified loans in its portfolio in addition to classified loans. A
provision for loan losses is charged to operations based on management's
evaluation of the potential losses that may be incurred in the Company's loan
portfolio. Management also periodically performs valuations of other real estate
owned and establishes allowances to reduce book values of the properties to
their net realizable values when necessary.
Management will continue to review the entire loan portfolio to determine the
extent, if any, to which further additional loan loss provisions may be deemed
necessary. There can be no assurance that the allowance for loan losses will be
adequate to cover losses which may be realized in the future. In addition, there
can be no assurance that additional provisions for losses on loans and other
real estate owned will not be required.
9
The following table sets forth information with respect to the Company's
allowance for loan losses at the dates indicated:
At September 30,
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
(Dollars in thousands)
Allowance balance, beginning of period ...... $ 2,941 $ 2,564 $ 2,633 $ 2,385 $ 1,902
--------- --------- --------- --------- ---------
Provision for loan losses ................... 630 540 405 317 600
--------- --------- --------- --------- ---------
Charge-offs:
Residential ............................... (32) (37) (218) (19) (70)
Commercial real estate .................... - - (146) (12) -
Consumer .................................. (256) (214) (110) (38) (49)
--------- --------- --------- --------- ---------
Total charge-offs ........................... (288) (251) (474) (69) (119)
Recoveries .................................. 38 88 - - 2
--------- --------- --------- --------- ---------
Net (charge-offs) recoveries ................ (250) (163) (474) (69) (117)
--------- --------- --------- --------- ---------
Allowance balance, end of period ............ $ 3,321 $ 2,941 $ 2,564 $ 2,633 $ 2,385
========= ========= ========= ========= =========
Total loans outstanding ..................... $ 440,386 $ 397,910 $ 338,610 $ 355,551 $ 321,327
========= ========= ========= ========= =========
Average loans outstanding ................... $ 423,409 $ 368,513 $ 339,218 $ 339,992 $ 288,901
========= ========= ========= ========= =========
Allowance for loan losses as a percent of
total loans outstanding ................. .75% .74% .76% .74% .74%
Net loans charged off as a percent of average
loans outstanding ....................... .06% .04% .14% .02% .04%
10
Allocation of Allowance for Loan Losses. The following table sets forth the
allocation of the Company's allowance for loan losses by loan category and the
percent of loans in each category to total loans receivable, net, at the dates
indicated. The portion of the allowance for loan losses allocated to each loan
category does not represent the total available for future losses which may
occur within the loan category since the total allowance for loan losses is a
valuation allowance applicable to the entire loan portfolio.
At September 30,
--------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------------- ------------------- ----------------------- -------------------- ------------------
Percent of Percent of Percent of Percent of Percent of
loans to Loans to loans to loans to loans to
Amount total loans Amount Total loans Amount total loans Amount total loans Amount total loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------------------
(Dollars in thousands)
At end of period
allocated to:
Residential........ $ 1,804 72.2% $ 1,689 73.4% $ 1,564 75.9% $ 1,523 75.3% $ 1,491 79.6%
Multi-family....... 27 .8 37 1.4 33 1.2 31 1.1 34 1.4
Commercial real
estate and land.... 566 8.9 289 7.3 206 6.7 251 5.0 234 2.7
Consumer........... 924 18.1 926 17.9 761 16.2 828 18.6 626 16.3
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total allowance.... $ 3,321 100.00% $ 2,941 100.00% $ 2,564 100.00% $ 2,633 100.00% $ 2,385 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
11
Investment Activities
General. Federally chartered savings banks have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various Federal agencies (including securities collateralized by
mortgages), certain certificates of deposits of insured banks and savings
institutions, municipal securities, corporate debt securities and loans to other
banking institutions.
The Company maintains liquid assets which may be invested in specified
short-term securities and certain other investments. Liquidity levels may be
increased or decreased depending on the yields on investment alternatives and
upon management's judgment as to the attractiveness of the yields then available
in relation to other opportunities and its expectation of future yield levels,
as well as management's projections as to the short-term demand for funds to be
used in the Company's loan origination and other activities. At September 30,
2000, the Company had an investment securities portfolio of $106.3 million
(18.3% of total assets).
Investment Policies. The investment policy of the Company, which is established
by the Board of Directors, is designed to foster earnings and liquidity within
prudent interest rate risk guidelines, while complementing the Company's lending
activities. The policy provides for available for sale, held to maturity and
trading classifications. However, the Company does not currently use a trading
classification and does not anticipate doing so in the future. The policy
permits investments in high credit quality instruments with diversified cash
flows while permitting the Company to maximize total return within the
guidelines set forth in the Company's interest rate risk and liquidity
management policy. Permitted investments include but are not limited to U. S.
government obligations, government agency or government-sponsored agency
obligations, state, county and municipal obligations, mortgage-backed securities
and collateralized mortgage obligations guaranteed by government or
government-sponsored agencies, investment grade corporate debt securities, and
commercial paper. The Company also invests in FHLB overnight deposits and
federal funds, but these instruments are not considered part of the investment
portfolio.
The policy also includes several specific guidelines and restrictions to insure
adherence with safe and sound activities. The policy prohibits investments in
high risk mortgage derivative products (as defined within its policy) without
prior approval from the Board of Directors. Management must demonstrate the
business advantage of such investments. In addition, the policy limits the
maximum amount of the investment in a specific investment category. The Company
does not participate in hedging programs, interest rate swaps, or other
activities involving the use of off-balance sheet derivative financial
instruments. Further, the Company does not invest in securities which are not
investment grade.
The Board through its Investment and Asset Liability Committee ("ALCO") has
charged the Chief Financial Officer to implement the policy. All transactions
are reported to the Board of Directors monthly, with the entire portfolio
reported quarterly, including market values and unrealized gains (losses).
Investment Securities. The Company maintains a portfolio of investment
securities, classified as either available for sale or held to maturity, to
enhance total return on investments. At September 30, 2000, the Company's
investment securities included U.S. government agency obligations with varying
characteristics as to rate, maturity and call provisions, corporate bonds, and
municipal bonds. Callable agency securities, representing 52% of the Company's
U.S. government agency obligations at September 30, 2000, could reduce the
Company's investment yield if these securities are called prior to maturity.
12
Mortgage-backed Securities. The Company invests in mortgage-backed securities to
provide earnings, liquidity, cash flows, and diversification to the Company's
overall balance sheet. These mortgage-backed securities are classified as
available for sale. These securities are participation certificates issued and
guaranteed by the Ginnie Mae, the Fannie Mae and the Freddie Mac and secured by
interests in pools of mortgages. Mortgage-backed securities typically represent
a participation interest in a pool of single-family or multi-family mortgages,
although the Company focuses its investments on mortgage-backed securities
secured by single-family mortgages.
Mortgage-backed securities typically are issued with stated principal amounts.
The securities are backed by pools of mortgages that have loans with interest
rates that are within a set range and have varying maturities. The underlying
pool of mortgages can be composed of either fixed-rate or adjustable rate
mortgage loans. The interest rate risk characteristics of the underlying pool of
mortgages (i.e., fixed-rate or adjustable-rate) and the prepayment risk, are
passed on to the security holder. The life of a mortgage-backed pass-through
security is equal to the life of the underlying mortgages.
Collateralized Mortgage Obligations ("CMOs"). The Company also invests in CMOs,
issued or sponsored by Fannie Mae, Freddie Mac or private issuers. CMOs are a
type of debt security that aggregates pools of mortgages and mortgage-backed
securities and creates different classes of CMO securities with varying
maturities and amortization schedules as well as a residual interest with each
class having different risk characteristics. The cash flows from the underlying
collateral are usually divided into "tranches" or classes whereby tranches have
descending priorities with respect to the distribution of principal and interest
repayment of the underlying mortgages and mortgage-backed securities as opposed
to mortgage-backed securities where cash flows are distributed pro rata to all
security holders. Unlike mortgage-backed securities from which cash flow is
received and prepayment risk is shared pro rata by all securities holders, cash
flows from the mortgages and mortgage-backed securities underlying CMOs are paid
in accordance with a predetermined priority to investors holding various
tranches of such securities or obligations. A particular tranche or class may
carry prepayment risk which may be different from that of the underlying
collateral and other tranches. Investing in CMOs allows the Company to moderate
reinvestment risk resulting from unexpected prepayment activity associated with
conventional mortgage-backed securities. Management believes these securities
represent attractive alternatives relative to other investments due to the wide
variety of maturity, repayment and interest rate options available.
Corporate Bonds. Corporate bonds (including capital trust securities) generally
have long-term maturities, but include call provisions at earlier dates
(generally after seven to ten years). The call provisions usually contain a
premium price to exercise the call feature. The Company has invested in these
longer maturity bonds and securities with fixed rates of interest to provide
higher yields to protect part of its assets from the possible decline in
interest rates over the life of the bond. Although interest rates may rise over
the life of these securities, management believes these securities provide a
good complement to those assets (loans and investments) which are subject to
periodic principal repayments and payoffs before contractual maturities.
Municipal Bonds. Municipal bonds have maturities from 12 to 20 years with
premium call provisions after seven to ten years. These bonds are exempt from
federal income taxes, therefore, have lower stated interest rates. All municipal
bonds owned by the bank have fixed rates of interest. The yields included in the
investment tables reflect the tax equivalent yields for the municipal bonds.
Other Securities. Other securities owned by the Company, but not included in the
investment portfolio, consist of equity securities, interest-bearing deposits
and federal funds sold. Equity securities owned consist primarily of a $7.9
million investment in FHLB of Atlanta common stock (this amount is not shown in
the securities portfolio). As a member of the FHLB of Atlanta, ownership of FHLB
of Atlanta common shares is required. The remaining securities provide
diversification and complement the Company's overall investment strategy.
13
The following table sets forth the carrying value of the Company's securities
portfolio at the dates indicated.
At September 30,
---------------------------
2000 1999 1998
-------- ------- -------
(In thousands)
Securities held to maturity:
----------------------------
U.S. government agency securities.............. $ 1,000 $4,000 $8,998
Collateralized mortgage obligations............ 8,687 8,724 9,738
-------- ------- -------
Total securities held to maturity.............. 9,687 12,724 18,736
-------- ------- -------
Securities available for sale (at fair value):
----------------------------------------------
U.S. government agency securities .............. 19,357 20,513 24,711
Collateralized mortgage obligations............. 18,072 7,420 3,229
Mortgage-backed securities...................... 29,650 28,316 14,285
Corporate bonds................................. 20,186 6,718 -
Municipal bonds................................. 9,396 5,185 -
-------- ------- -------
Total securities available for sale............. 96,661 68,152 42,225
-------- ------- -------
Total ......................................... $106,348 $80,876 $60,961
======== ======= =======
14
The following table sets forth certain information regarding the carrying
values, weighted average yields and maturities (or repricing terms for variable
rate securities) of the Company's investment securities portfolio at September
30, 2000. Expected maturities will differ from contractual maturities due to
scheduled repayments and because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
At September 30, 2000
-------------------------------------------------------------------------------------------------------
More than
One Year or Less One to Five Years Five to Ten Years Ten Years Total Investment Securities
---------------- ----------------- ----------------- ------------------- ---------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
value yield value yield value yield value yield value yield value
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
U.S. government agency
Securities................. $ 1,000 5.54% $ 7,225 6.04% $10,185 6.98% $ 1,947 8.00% $ 20,357 6.68% $ 20,357
Collateralized mortgage
obligations.................. 8,687 6.59 - - 42 2.80 18,030 7.70 26,759 7.34 26,463
Mortgage-backed securities... - - - - 4,668 6.20 24,982 7.20 29,650 7.04 29,650
Corporate bonds.............. 990 6.63 7,345 7.50 3,906 8.08 7,945 8.31 20,186 7.90 20,186
Municipal bonds.............. - - - - - - 9,396 5.07 9,396 5.07 9,396
------- ---- ------- ---- ------- ---- ------- ---- -------- ---- --------
Total...................... $10,677 6.50% $14,570 6.77% $18,801 7.00% $62,300 7.19% $106,348 7.03% $106,052
======= ==== ======= ==== ======= ==== ======= ==== ======== ==== ========
15
Sources of Funds
General. Deposits are the major source of the Company's funds for lending and
other investment purposes. Borrowings (principally from the FHLB) are used to
compensate for reductions in the availability of funds from other sources. In
addition to deposits and borrowing, the Company derives funds from loan and
mortgage-backed securities principal repayments, and proceeds from the maturity,
call and sale of mortgage-backed securities and investment securities. Loan and
mortgage-backed securities payments are a relatively stable source of funds,
while deposit inflows are significantly influenced by general interest rates and
money market conditions.
Deposits. The Company offers a variety of deposit accounts, although a majority
of deposits are in fixed-term, market-rate certificate accounts. Deposit account
terms vary, primarily as to the required minimum balance amount, the amount of
time that the funds must remain on deposit and the applicable interest rate.
The Company's current deposit products include certificate accounts ranging in
terms from 90 days to five years as well as checking, savings and money market
accounts. Individual retirement accounts (IRAs) are included in these accounts,
depending on the customers investment preference.
Deposits are obtained primarily from residents of Polk and Manatee Counties. The
Company attracts deposit accounts by offering outstanding service, competitive
interest rates, and convenient locations and service hours. The Company uses
traditional methods of advertising to attract new customers and deposits,
including radio, cable television, direct mail and print media advertising. The
Company does not utilize the services of deposit brokers and management believes
that an insignificant number of deposit accounts are held by non-residents of
Florida.
The Company pays interest on its deposits which are competitive in its market.
Interest rates on deposits are set weekly by senior management, based on a
number of factors, including:
o projected cash flow;
o a current survey of a selected group of competitors' rates for similar
products;
o external data which may influence interest rates;
o investment opportunities and loan demand; and
o scheduled certificate maturities and loan and investment repayments.
Because of the large percentage of certificate accounts in the deposit portfolio
(71.4% at September 30, 2000), the Company's liquidity could be reduced if a
significant amount of these accounts, maturing within a short period of time,
were not renewed. A significant portion of the certificate accounts remain with
the Company after they mature and the Company believes that current renewal
patterns will continue. However, the need to retain these accounts could result
in an increase in the Company's cost of funds.
The following table shows the amount (in thousands) of the Company's certificate
accounts of $100,000 or more by time remaining until maturity as of September
30, 2000.
Certificate
Maturity Period Accounts
--------------- --------
Within three months................................ $ 9,418
Three through six months........................... 10,476
Six through twelve months.......................... 20,679
Over twelve months................................. 16,775
-------
$57,348
=======
16
Borrowings. Deposits are the primary source of funds of the Company's lending
and investment activities and for general business purposes. The Company, as the
need arises or in order to take advantage of funding opportunities, may borrow
funds in the form of advances from the FHLB to supplement its supply of lendable
funds and to meet deposit withdrawal requirements. Advances from the FHLB are
typically secured by stock in the FHLB and a portion of the Company's
residential mortgage loans and may be secured by other assets, principally
securities which are obligations of or guaranteed by the U.S. Government. The
Company typically has funded loan demand and investment opportunities out of
current loan and mortgage-backed securities repayments, investment maturities
and new deposits. However, in recent years the Company has utilized FHLB
advances to supplement these sources and as a match against certain assets in
order to better manage interest rate risk. The following table sets forth the
maximum month-end balance and the average balance of Federal Home Loan Bank
advances for the periods indicated.
For the Year Ended September 30,
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Maximum amount of borrowings outstanding at any month end:
Advances from FHLB........................... $158,000 $87,600 $21,000
Approximate average borrowings outstanding with respect to:
Advances from FHLB........................... $128,523 $49,510 $ 2,647
Approximate weighted average rate paid on:
Advances from FHLB........................... 5.93% 4.82% 5.10%
See Note 7 to the consolidated financial statements for additional information.
Personnel
As of September 30, 2000 the Company had 159 full-time employees and 13
part-time employees. The employees are not represented by a collective
bargaining unit. The Company believes its relationship with its employees to be
satisfactory.
17
Regulation
Set forth below is a brief description of certain laws relating to the
regulation of the Company and the Bank. The description does not purport to be
complete and is qualified in its entirety by reference to applicable laws and
regulations.
Financial Modernization Legislation
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Financial Services Modernization Act (the GLB Act"), which repealed the
prohibitions against bank affiliations with securities and insurance firms. The
GLB Act authorizes qualifying bank holding companies to become financial holding
companies and thereby affiliate with securities firms and insurance companies
and engage in other activities that are financial in nature. Additionally, the
GLB Act defines financial in nature to include securities underwriting, dealing
and market making; sponsoring mutual funds and investment companies; insurance
underwriting and agency; merchant banking activities, and activities that the
Federal Reserve Board has determined to be closely related to banking. A
qualifying national bank also may engage, subject to limitations on investment,
in activities that are financial in nature, other than insurance underwriting,
insurance company portfolio investment, real estate development, and real estate
investment, through a financial subsidiary of the bank.
The GLB Act repeals the "unitary savings and loan holding company exemption"
from the restrictions imposed by the Home Owners' Loan Act on the business
activities of savings and loan holding companies. However, the GLB Act
grandfathers from this provision companies that were already unitary savings and
loan holding companies before May 4, 1999 or that result from an internal
reorganization of such preexisting unitary holding companies. Grandfathered
unitary savings and loan holding companies have no restrictions on their
activities at the holding company level. However, non-grandfathered unitary
savings and loan holding companies may engage only in activities authorized for
savings and loan holding companies under the Home Owners' Loan Act and in
banking, securities, insurance and merchant banking activities permitted for
financial holding companies under the GLB Act. Since the Company was a unitary
savings and loan holding company before May 4, 1999, the Company expects to be a
grandfathered unitary savings and loan holding company. However, there is no
assurance that the Office of Thrift Supervision ("OTS") will consider the
Company a grandfathered holding company, since the Company has not requested an
opinion from the OTS regarding its status under the GLB Act's grandfathered
provisions.
The GLB Act imposes significant new financial privacy obligations and reporting
requirements on all financial institutions, including federal savings
associations. Specifically, the statute, among other things, will require
financial institutions to:
o establish privacy policies and disclose them to customers both at the
commencement of a customer relationship and on an annual basis; and
o permit customers to opt out of a financial institution's disclosure of
financial information to nonaffiliated third parties.
The federal financial regulators have promulgated final regulations implementing
these provisions, which will become effective July 1, 2001.
The GLB Act also enacts significant changes to the FHLB System. The GLB Act
expands the permissible uses of FHLB advances by community financial
institutions, under $500 million in assets, to include funding loans to small
businesses, small farms and small agricultural businesses. In addition, the GLB
Act makes membership in a regional FHLB voluntary for federal savings
associations.
18
Regulation of the Company
General. The Company is registered as a savings and loan holding company with
the OTS. The Company will be required to file reports with the OTS and will be
subject to supervision and periodic examination by the OTS. In addition, the OTS
will have enforcement authority over the Company and any non-savings institution
subsidiaries. The OTS can restrict or prohibit activities that it determines to
be a serious risk to the Company. OTS regulations are intended primarily for the
protection of the depositors and not for the benefit of the Company's
stockholders.
Activities Restrictions. Because FloridaFirst Bancorp, the former mid-tier
holding company, was a unitary savings and loan holding company prior to May 4,
1999, the Company expects it will be a grandfathered unitary savings and loan
holding company under the GLB Act. If the Company is a grandfathered unitary
holding company, there would be generally no restrictions on its business
activities. However, there is no assurance of the type of activities the Company
will be permitted to engage in, since the Company has not requested an opinion
from the OTS as to whether any restrictions will apply. Additionally, if the
Bank were to fail to meet the Qualified Thrift Lender Test, then the Company
would become subject to the activities restrictions of the Home Owners' Loan Act
applicable to multiple holding companies. See "Regulation of FloridaFirst Bank
- -- Qualified Thrift Lender Test."
If the Company were to acquire control of another savings institution, the
Company would lose its grandfathered status under the GLB Act and the Company's
business activities would be restricted to certain activities specified by OTS
regulation, which include performing services and holding properties used by a
savings institution subsidiary, certain activities authorized for savings and
loan holding companies as of March 5, 1987, and nonbanking activities
permissible for bank holding companies pursuant to the Bank Holding Company Act
of 1956 or authorized for financial holding companies pursuant to the GLB Act.
Furthermore, no company may acquire control of the Company or the Bank unless
the company was a unitary savings and loan holding company on May 4, 1999, or
became a unitary savings and loan holding company pursuant to an application
pending as of that date, or the company is only engaged in activities that are
permitted for multiple savings and loan holding companies or for financial
holding companies under the Bank Holding Company Act as amended by the GLB Act.
Mergers and Acquisitions. The Company must obtain approval from the OTS before
acquiring more than 5% of the voting stock of another savings institution or
savings and loan holding company or acquiring such an institution or company by
merger, consolidation or purchase of its assets. In evaluating an application
for the Company to acquire control of a savings institution, the OTS would
consider the financial and managerial resources and future prospects of the
Company and the target institution, the effect of the acquisition on the risk to
the insurance funds, the convenience and the needs of the community and
competitive factors.
19
Regulation of the Bank
General. As a federally chartered, insured savings association of the Savings
Association Insurance Fund ("SAIF"), the Bank is subject to extensive regulation
by the OTS and the Federal Deposit Insurance Corporation ("FDIC"). Lending
activities and other investments must comply with federal statutory and
regulatory requirements. The Bank is also subject to reserve requirements of the
Federal Reserve System. Federal regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the SAIF and depositors. This
regulatory structure gives the regulatory authorities extensive discretion in
connection with their supervisory and enforcement activities and examination
policies, including policies regarding the classification of assets and the
establishment of an adequate allowance for loan losses.
The OTS regularly examines the Bank and prepares reports to Bank's board of
directors on deficiencies, if any, found in its operations. The Bank's
relationship with its depositors and borrowers is also regulated by federal law,
especially in such matters as the ownership of savings accounts and the form and
content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its activities
and financial condition, and must obtain regulatory approvals prior to entering
into certain transactions such as mergers with or acquisitions of other
financial institutions. Any change in applicable statutory and regulatory
requirements, whether by the OTS, the FDIC or the United States Congress, could
have a material adverse impact on the Bank or the Company, and their operations.
Insurance of Deposit Accounts. The FDIC administers two separate deposit
insurance funds. Generally, the Bank Insurance Fund ("BIF") insures the deposits
of commercial banks and the SAIF insures the deposits of savings institutions.
The FDIC is authorized to increase deposit insurance premiums if it determines
such increases are appropriate to maintain the reserves of either the SAIF or
the BIF or to fund the administration of the FDIC. In addition, the FDIC is
authorized to levy emergency special assessments on BIF and SAIF members. The
FDIC has set the deposit insurance assessment rates for SAIF member institutions
for the first six months of 2000 at 0% to .027% of insured deposits on an
annualized basis, with the assessment rate for most savings institutions set at
0%.
In addition, all insured institutions of the FDIC are required to pay
assessments to the corporation at an annual rate of approximately .0212% of
insured deposits to fund interest payments on bonds issued by the Financing
Corporation, an agency of the Federal government established to recapitalize the
predecessor to the SAIF. These assessments will continue until the Financing
Corporation bonds mature in 2017.
Regulatory Capital Requirements. OTS capital regulations require savings
institutions to meet three capital standards:
o tangible capital equal to 1.5% of total adjusted assets;
o "Tier 1" or "core" capital equal to at least 3% of total adjusted assets
for savings institutions that receive the highest supervisory rating for
safety and soundness and 4% of total adjusted assets for all other thrifts;
and
o risk-based capital equal to 8% of total risk-weighted assets.
The Bank's capital ratios are set forth in Note 11 to the consolidated financial
statements.
20
For purposes of the OTS capital regulations, tangible capital is defined as core
capital less all intangible assets except for certain mortgage servicing rights.
Tier 1 and core capital are defined as common stockholders' equity,
noncumulative perpetual preferred stock and related surplus, minority interests
in the equity accounts of consolidated subsidiaries, certain nonwithdrawable
accounts and pledged deposits of mutual savings associations and qualifying
supervisory goodwill. Tier 1 and core capital are reduced by an institution's
intangible assets, with limited exceptions for certain mortgage and nonmortgage
servicing rights and purchased credit card relationships. Both core and tangible
capital are further reduced by an amount equal to the savings institution's debt
and equity investments in "nonincludable" subsidiaries engaged in activities not
permissible to national banks other than subsidiaries engaged in activities
undertaken as agent for customers or in mortgage banking activities and
subsidiary depository institutions or their holding companies.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital of 8% of risk-weighted assets.
Risk-based capital is comprised of core and supplementary capital. The
components of supplementary capital include, among other items, cumulative
perpetual preferred stock, perpetual subordinated debt, mandatory convertible
subordinated debt, intermediate-term preferred stock, and the portion of the
allowance for loan losses not designated for specific loan losses. The portion
of the allowance for loan and lease losses includable in supplementary capital
is limited to a maximum of 1.25% of risk-weighted assets. Overall, supplementary
capital is limited to 100% of core capital. A savings institution's risk-based
capital is reduced by the amount of capital instruments held by other depository
institutions pursuant to reciprocal arrangements and by the amount of the
institution's equity investments, other than those deducted from core and
tangible capital, and its high loan-to-value ratio land loans and
non-residential construction loans.
A savings institution's risk-based capital requirement is measured against
risk-weighted assets, which equal the sum of each on-balance-sheet asset and the
credit-equivalent amount of each off-balance-sheet item after being multiplied
by an assigned risk weight. These risk weights range from 0% for cash to 100%
for delinquent loans, property acquired through foreclosure, commercial loans,
and other assets.
OTS rules require a deduction from capital for savings institutions with certain
levels of interest rate risk. The OTS calculates the sensitivity of an
institution's NPV based on data submitted by the institution in a schedule to
its quarterly Thrift Financial Report ("TFR") and using the interest rate risk
measurement model adopted by the OTS. The amount of the interest rate risk
component, if any, deducted from an institution's total capital is based on the
institution's TFR filed two quarters earlier. The OTS has indefinitely postponed
implementation of the interest rate risk component, and the Bank has not been
required to determine whether it will be required to deduct an interest rate
risk component from capital.
Dividend and Other Capital Distribution Limitations. The OTS imposes various
restrictions or requirements on the ability of savings institutions to make
capital distributions, including cash dividends.
A savings institution that is a subsidiary of a savings and loan holding
company, such as the Bank, must file an application or a notice with the OTS at
least 30 days before making a capital distribution. A savings institution must
file an application for prior approval of a capital distribution if:
o it is not eligible for expedited treatment under the applications
processing rules of the OTS;
o the total amount of all capital distributions, including the proposed
capital distribution, for the applicable calendar year would exceed an
amount equal to the savings bank's net income for that year to date plus
the institution's retained net income for the preceding two years;
o it would not adequately be capitalized after the capital distribution; or
o the distribution would violate an agreement with the OTS or applicable
regulation.
21
The Bank will be required to file a capital distribution notice or application
with the OTS before paying any dividend to the Company. However, capital
distributions by the Company, as a savings and loan holding company, will not be
subject to the OTS capital distribution rules. The OTS may disapprove a notice
or deny an application for a capital distribution by the Bank if:
o the savings institution would be undercapitalized following the capital
distribution;
o the proposed capital distribution raises safety and soundness concerns; or
o the capital distribution would violate a prohibition contained in any
statute, regulation or agreement. In addition, a federal savings
institution cannot distribute regulatory capital that is required for its
liquidation account.
Qualified Thrift Lender Test. Federal savings institutions must meet a qualified
thrift lender test or they become subject to the business activity restrictions
and branching rules applicable to national banks. To qualify as a qualified
thrift lender, a savings institution must either:
o be deemed a "domestic building and loan association" under the Internal
Revenue Code by maintaining at least 60% of its total assets in specified
types of assets, including cash, certain government securities, loans
secured by and other assets related to residential real property,
educational loans and investments in premises of the institution; or
o satisfy the statutory qualified thrift lender test set forth in the Home
Owners' Loan Act by maintaining at least 65% of its "portfolio assets" in
certain qualified thrift investments, defined to include residential
mortgages and related equity investments, certain mortgage-related
securities, small business loans, student loans and credit card loans, and
50% of certain community development loans. For purposes of the statutory
qualified thrift lender test, portfolio assets are defined as total assets
minus intangible assets, property used by the institution in conducting its
business, and liquid assets equal to 10% of total assets. A savings
institution must maintain its status as a qualified thrift lender on a
monthly basis in at least nine out of every 12 months. The Bank met the
qualified thrift lender test as of September 30, 2000 and in each of the
last 12 months and, therefore, qualifies as a qualified thrift lender.
Loans to One Borrower. Under federal law, savings institutions have, subject to
certain exemptions, lending limits to one borrower in an amount equal to the
greater of $500,000 or 15% of the institution's unimpaired capital and surplus.
As of September 30, 2000, the Bank's legal lending limit to one borrower was
$8.0 million.
Liquidity Requirements. All federal savings institutions are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowing payable in one year or less. Depending on economic conditions and
savings flows of all savings institutions, the OTS can vary the liquidity
requirement from time to time between 4% and 10%. Monetary penalties may be
imposed on institutions for liquidity requirement violations.
FHLB System. The Bank is a member of the FHLB of Atlanta, which is one of 12
regional FHLBs. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from funds deposited by
financial institutions and proceeds derived from the sale of consolidated
obligations of the FHLB system. It makes loans to members pursuant to policies
and procedures established by the board of directors of the FHLB.
22
As a member, the Bank is required to purchase and maintain stock in the FHLB of
Atlanta in an amount equal to the greater of 1% of our aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year or 5% of FHLB advances. The Bank is in compliance
with this requirement. The FHLB imposes various limitations on advances such as
limiting the amount of certain types of real estate related collateral generally
to 30% of a member's capital and limiting total advances to a member.
The FHLBs are required to provide funds for the resolution of troubled savings
institutions and to contribute to affordable housing programs through direct
loans or interest subsidies on advances targeted for community investment and
low- and moderate-income housing projects. These contributions have adversely
affected the level of dividends paid by the FHLBs and could continue to do so in
the future.
Federal Reserve System. The Federal Reserve System requires all depository
institutions to maintain non-interest-bearing reserves at specified levels
against their checking accounts and non- personal certificate accounts. The
balances maintained to meet the reserve requirements imposed by the Federal
Reserve System may be used to satisfy the OTS liquidity requirements.
Savings institutions have authority to borrow from the Federal Reserve System
"discount window," but Federal Reserve System policy generally requires savings
institutions to exhaust all other sources before borrowing from the Federal
Reserve System.
Item 2. Description of Property
- --------------------------------
Our corporate offices are located at 205 East Orange Street in Lakeland,
Florida. We conduct our business through nine offices, which are located in Polk
and Manatee Counties in Florida. The following table sets forth the location of
each of our offices, the year the office was opened and the net book value (in
thousands) of each office and its related equipment.
23
Year facility
opened or Leased or Net book value at
Building/Office Location acquired Owned September 30, 2000
------------------------ -------- ----- ------------------
Downtown/Corporate Headquarters 1957 Owned $2,208
Branch Offices:
Grove Park 1961 Owned 357
Highlands 1972 Owned 580
Interstate 1985 Owned 467
Winter Haven North 1978 Owned 535
Winter Haven South 1995 Owned 889
West Bradenton 1989 Owned 783
Cortez (Bradenton) 1972 Leased (1) 119
Scott Lake 1997 Owned 594
Operations Center 1964 Owned 289
Residential Lending Office 1999 Leased (2) 10
New branch/land 1,199(3)
Other projects in progress 905(3)
- --------------------
(1) Five-year lease that terminates December 31, 2003, but has two three-year
renewal options.
(2) Six-month renewable lease.
(3) In fiscal 2001 and 2002, the Bank plans to open approximately three de novo
branches in Polk and Manatees Counties, Florida. See "Management Discussion
and Analysis of Financial Condition and Results of Operations -- Comparison
of Operating Results for the Year Ended September 30, 2000 and September
30, 1999 -- Other Expenses."
As of September 30, 2000, the net book value of land, buildings, furniture and
equipment owned by us, less accumulated depreciation, totaled $8.9 million.
In March 1999, the Bank sold a former branch site. In connection with the sale
of this property, the Bank agreed to indemnify the purchaser for the costs of
obtaining closure with state environmental authorities regarding the necessity
of further remediation of certain environmental contamination on the sites due
to outside sources. The Company anticipates that any costs related to obtaining
closure with the state environmental authorities should occur in fiscal year
2001. Any costs incurred will be applied against the deferred gain, then the
remaining gain will be reflected in the consolidated statement of earnings. A
deferred gain of $190,000 related to the sale of this property is included in
Other Liabilities in the consolidated statement of financial condition pending
resolution of this matter. The Company does not currently anticipate that it
will incur additional material expense associated with the sale of this
property.
24
Item 3. Legal Proceedings
- --------------------------
From time to time the Company and the Bank are involved as plaintiff or
defendant in various legal actions arising in the normal course of business.
Presently, neither the Company nor the Bank are a party to any material pending
legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
On December 18, 2000 FloridaFirst Bancorp held a meeting of stockholders to
approve the conversion and reorganization. The proposal was approved by the
following votes:
For Against Withheld
-------------- ------------------ -----------------
4,297,130 4,096 11,243
25
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
- --------------------------------------------------------------------------------
Since its issuance on April 6, 1999, the Company's common stock has traded on
the Nasdaq National Market under the symbol FFBK. Upon completion of the
conversion and reorganization on December 21, 2000, the common stock continues
to trade on the Nasdaq National Market under the same symbol, FFBK. The
following table sets forth dividend information and market price information,
based on closing prices, as reported by the Nasdaq National Market for the
common stock high and low sales prices for the periods indicated. See Note 19 of
the consolidated financial statements for a summary of quarterly financial data.
Cash Dividends
High Low Per Share Declared
---- --- ------------------
Fiscal 2000
First Quarter...................................... $9.38 $8.50 $.04
Second Quarter..................................... 8.88 7.31 .04
Third Quarter...................................... 8.25 7.25 .04
Fourth Quarter..................................... 12.25 7.88 .04
Fiscal 1999
Third Quarter (April 6, 1999 - June 30, 1999)...... 9.50 7.88 --
Fourth Quarter..................................... 9.50 8.38 .04
The ability to pay dividends to stockholders is dependent upon the dividends it
receives from the Bank. The Bank may not declare or pay a cash dividend on any
of its stock if the effect of such payment would cause its regulatory capital to
be reduced below the regulatory requirements imposed by the OTS.
The number of stockholders of record of common stock as of December 22, 2000 was
approximately 1,560, which do not include the number of persons or entities who
held stock in nominee or "street" name through various brokerage firms.
26
Item 6. Selected Financial Data
- --------------------------------
Selected Financial Highlights
-----------------------------
(In thousands except share data)
At September 30: 2000 1999 1998 (2) 1997 1996 (3)
-------- -------- -------- --------- --------
Assets................................... $ 582,180 $ 498,358 $ 414,472 $ 466,765 $ 440,294
Loans receivable, net.................... 440,386 397,910 338,610 355,551 321,327
Investment securities.................... 106,348 80,876 60,961 74,573 99,841
Cash and cash equivalents................ 6,734 2,598 647 21,842 3,885
Deposits................................. 354,554 339,224 352,180 429,714 404,184
FHLB advances and other borrowings....... 160,937 92,472 21,000
Stockholders' equity..................... 61,081 61,337 36,107 33,588 30,569
Actual number (not in thousands):
Real estate loans outstanding............ 4,615 4,696 4,433 5,149 5,461
Deposit accounts......................... 36,747 38,409 38,409 46,012 43,002
Full service offices..................... 9 9 9 14 13
For the year ended September 30:
Interest income.......................... $ 39,840 $ 32,648 $ 32,141 $ 33,865 $ 31,694
Interest expense......................... 23,575 17,128 18,966 19,702 18,961
-------- -------- -------- -------- --------
Net interest income...................... 16,265 15,520 13,175 14,163 12,733
Provision for loan losses................ 630 540 405 317 600
-------- -------- -------- -------- --------
Net interest income after provision
For loan losses..................... 15,635 14,980 12,770 13,846 12,133
Other income............................. 2,114 1,473 4,347 1,189 1,546
Other expenses........................... 11,813 11,448 13,581 11,209 13,382
-------- -------- -------- -------- --------
Income before income taxes .............. 5,936 5,005 3,536 3,826 297
Income taxes............................. 2,094 1,748 1,151 1,299 44
-------- -------- -------- -------- --------
Net income............................... $ 3,842 $ 3,257 $ 2,385 $ 2,527 $ 253
======== ======== ======== ======== ========
Basic earnings per share (1)............. $ .73 $ .34 - - -
======== ========
Diluted earnings per share (1)........... $ .72 $ .34 - - -
======== ========
Weighted average common and common equivalent
shares outstanding: (1)
Basic 5,256 5,549 - - -
Diluted 5,345 5,549 - - -
- -----------------
(1) Years 2000 and 1999 include $25.7 million in net proceeds from the
reorganization on April 6, 1999. Prior to April 6, 1999, the Bank was a
mutual institution. Therefore, earnings per share and weighted average
shares outstanding in 1999 are for the six months ended September 30, 1999
(period subsequent to the reorganization.)
(2) During fiscal year 1998, the Bank sold five branches (and $55.5 million in
related deposits) that were not contiguous to its primary market area for a
pre-tax gain of $3.0 million. In connection with the sale of branches, the
Bank transferred $44.6 million in loans. In addition, other expenses
includes special benefit plan adjustments of $2.2 million.
(3) 1996 includes a $2.5 million one-time special assessment to recapitalize
the Savings Association Insurance Fund.
27
Selected Financial Ratios
-------------------------
At or For the Year Ended September 30,
---------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Performance Ratios:
Return on average assets (net income
divided by average total assets)........ .70% .72% .55% .56% .06%
Return on average equity (net income
divided by average equity).............. 6.43 6.65 6.55 7.71 .79
Net interest rate spread.................... 2.54 2.95 2.65 2.87 2.68
Net interest margin on average
interest-earnings assets................ 3.13 3.56 3.10 3.23 3.03
Average interest-earning assets to
average interest-bearing liabilities.... 113 116 110 108 108
Efficiency ratio (noninterest expense,
other than the $2.5 million SAIF
special assessment in 1997, divided
by the sum of net interest income and
noninterest income)...................... 64 67 78 74 76
Asset Quality Ratios:
Non-performing loans to total loans, net .17 .21 .25 .65 .37
Non-performing assets to total assets.... .17 .21 .32 .53 .28
Net charge-offs to average loans
outstanding............................ .06 .04 .14 .02 .04
Allowance for loan losses to total loans.... .75 .74 .76 .74 .74
Capital Ratios:
Average equity to average assets
(average equity divided by average 10.94 10.84 8.31 7.25 7.41
total assets).........................
Equity to assets at period end.............. 10.49 12.31 8.62 7.20 6.94
Dividend payout ratio....................... 22 12 - - -
28
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
The following discussion should be read in conjunction with the Selected
Financial Highlights and Selected Financial Ratios and the Consolidated
Financial Statements and related notes appearing elsewhere in this Form 10-K.
General
On April 6, 1999, FloridaFirst Bank reorganized from a mutual savings
association into a mutual holding company named FloridaFirst Bancorp MHC and
formed FloridaFirst Bancorp, a middle-tier holding company, whereby FloridaFirst
Bank became a wholly-owned subsidiary of FloridaFirst Bancorp. In connection
with the reorganization, FloridaFirst Bancorp sold 2,703,851 shares of its
Common Stock to the public and the remaining 3,049,024 shares were held by
FloridaFirst Bancorp MHC.
On December 21, 2000, FloridaFirst Bancorp, Inc. (the "Company") completed its
stock offering in connection with the conversion and reorganization of
FloridaFirst Bank (the "Bank") and its holding company, FloridaFirst Bancorp,
from the mutual holding company form of organization to a full stock company. As
part of the conversion and reorganization, the shares formerly held by
FloridaFirst Bancorp MHC were cancelled, the Company sold 3,147,952 new shares
to the public and the shares held by stockholders of FloridaFirst Bancorp were
exchanged for 2,372,048 shares of the Company. The conversion and reorganization
will be accounted for in a manner similar to a pooling of interests, whereby the
assets and liabilities of FloridaFirst Bancorp will become the Company's assets
and liabilities.
Forward-Looking Statements
The following discussions contain forward-looking statements that are based on
assumptions and describe future plans, strategies, and expectations of the Bank
and the Company. These forward-looking statements are generally identified by
use of the words "believe," "expect," "intend," "anticipate," "estimate,"
"project," or similar expressions. The Company's ability to predict results or
the actual effect of future plans or strategies is inherently uncertain. Factors
that could have a material adverse effect on the operations of the Company and
its subsidiaries include, but are not limited to, changes in interest rates,
general economic conditions, legislative/regulatory changes, monetary and fiscal
policies of the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board, the quality and composition of the loan and investment
portfolios, demand for loan products, deposit flows, competition, demand for
financial services in the Company's market area, and changes in relevant
accounting principles. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements. The Company does not undertake--and specifically disclaims--any
obligation to publicly release the results of any revisions after the date of
the statements or to reflect the occurrence of anticipated or unanticipated
events.
29
Business Strategy
The Board of Directors and management have developed expansion plans that
includes three de novo retail sales offices within its existing market areas and
deployment of a strategic plan. By seeking to broaden the range of its products
and services offered, the Company believes its strategies will offset the
declining margins in the competitive market for one- to four-family residential
mortgage loans. The strategic plan includes:
o increasing the percentage of higher yielding and more interest sensitive
assets;
o increasing the percentage of commercial and consumer loans and commercial
deposit accounts, among other products;
o increasing alternative sources of cash at reasonable rates;
o increasing sources of non-interest income;
o installing a new customer delivery software to enhance the sales efforts;
o upgrading our computer network for enhanced service and security features;
and
o investigation of alternative delivery systems, including an Internet
banking solution and enhanced call center strategy.
The Company is leasing one of the new retail sales offices and has purchased
land to construct buildings for two offices. The estimated capital expenditures
for all three locations, including land, building and equipment are $4.2
million. One location will have excess office space that will be leased to other
tenants. The second location has excess land that will be sold after the Company
determines the actual land needed for the office.
Highlights of the business strategy are as follows:
Community-Oriented Institution. Based on total assets, the Bank is the largest
independent financial institution headquartered in Polk County, Florida. The
Bank is committed to meeting the financial needs of the communities in which it
operates. Management believes that the Bank is large enough to provide a full
range of personal and business financial services, and yet is small enough to
provide such services in a personalized and efficient manner. The Bank has
recently added several convenience services to enhance its capabilities as a
full service community bank, including the issuance of debit cards and placing
automated teller machines at all of the branches. It is the Bank's current plan
to deliver the products and services that meet the needs of its customers,
including Internet banking.
Market Focus. The Bank continues to review all opportunities that may benefit
its business in its current market areas. In 2001 and 2002, the Bank will open a
total of three de novo branches in Polk and Manatee Counties, Florida. See "--
Comparison of Operating Results for the Years Ended September 30, 2000 and
September 30, 1999 -- Other Expenses."
Commercial Banking. The Bank continues to expand its lending programs for
commercial business and commercial real estate loans in an effort to satisfy a
perceived need within its market area and increase its loan portfolio. The Bank
continues to realize a positive impact on its net interest margin since
commercial customers generally provide a higher loan yield and a source of lower
cost funds. The risks of commercial lending relate to the source of repayment of
the loan which is weighted toward the ability to repay versus being primarily
collateral dependent.
In 1998, the Bank hired a senior commercial loan officer to head up the lending
and credit activities and two additional commercial loan staff members were
added to support its increased activities in this area. To further enhance its
transition to a full service community bank, the Bank recently hired two
additional lenders experienced in commercial lending and plans to increase its
marketing efforts on smaller businesses operating in its market areas.
30
Management of Interest Rate Risk and Market Risk
Qualitative Analysis. Because the majority of the Company assets and liabilities
are sensitive to changes in interest rates, its most significant form of market
risk is interest rate risk, or changes in interest rates. The Company is
vulnerable to an increase in interest rates to the extent that interest-bearing
liabilities mature or reprice more rapidly than interest-earning assets. Its
lending activities have historically emphasized the origination of long-term,
fixed-rate loans secured by single-family residences. The primary source of
funds has been deposits with substantially shorter maturities. While having
interest-bearing liabilities that reprice more frequently than interest-earning
assets is generally beneficial to net interest income during a period of
declining interest rates, such an asset/liability mismatch is generally
detrimental during periods of rising interest rates.
The Board of Directors has established an asset/liability committee that
consists of the Company's president and senior banking officers. The committee
meets on a monthly basis to review loan and deposit pricing and production
volumes, interest rate risk analysis, liquidity and borrowing needs, and a
variety of other asset and liability management issues.
To reduce the effect of interest rate changes on net interest income, the
Company has adopted various strategies to improve the matching of
interest-earning asset maturities to interest-bearing liability maturities. The
principal elements of these strategies include:
o the origination of commercial and consumer loans with adjustable rate
features or fixed rate loans with shorter term maturities;
o lengthening the maturities of liabilities when deemed cost effective
through the pricing and promotion of certificates of deposit and
utilization of Federal Home Loan Bank advances;
o attracting low cost checking and transaction accounts which tend to be less
sensitive to rising rates; and
o when market conditions permit, to originate and hold in its portfolio
adjustable rate mortgage loans which have periodic interest rate
adjustments. The Company also maintains an investment portfolio that
provides a stable cash flow, thereby providing investable funds in varying
interest rate cycles.
The Company has also made a significant effort to maintain its level of lower
cost deposits as a method of enhancing profitability. At September 30, 2000, the
Company had 28.6% of its deposits in savings, checking and money market
accounts. These deposits have traditionally remained relatively stable and are
expected to be only moderately affected in a period of rising interest rates.
This stability has enabled the Company to offset the impact of rising rates in
other deposit accounts.
Quantitative Analysis. Exposure to interest rate risk is actively monitored by
management. The Company's objective is to maintain a consistent level of
profitability within acceptable risk tolerances across a broad range of
potential interest rate environments. The Company uses the OTS Net Portfolio
Value ("NPV") Model to monitor its exposure to interest rate risk, which
calculates changes in NPV. The NPV Model measures interest rate risk by
computing estimated changes in the NPV of cash flow from assets, liabilities and
off-balance sheet items in the event of a range of assumed changes in market
interest rates. The NPV Model shows the degree to which balance sheet line items
and NPV are potentially affected by a 100 to 300 basis point change. One basis
point equals 1/100th of a percentage point. Reports generated by the NPV Model
are reviewed by the Asset/Liability Management Committee and reported to the
Board of Directors quarterly.
The NPV Model uses an option-based pricing approach to value one- to
four-family mortgages, mortgages serviced by or for others, and firm commitments
to buy, sell, or originate mortgages. This approach makes use of an interest
rate simulation program to generate numerous random interest rate paths that, in
conjunction with a prepayment model, are used to estimate mortgage cash flows.
Prepayment options and interest rate caps and floors contained in mortgages and
mortgage-related securities introduce significant uncertainty in estimating the
timing of cash flows for these instruments that warrants the use of this
sophisticated methodology. All other financial instruments are valued using a
static discounted cash flow
31
method. Under this approach, the present value is determined by discounting the
cash flows the instrument is expected to generate by the yields currently
available to investors from an instrument of comparable risk and duration.
Future interest rates and their effects on NPV and net interest income are not
predictable. Computations of prospective effects of hypothetical interest rate
changes are based on numerous assumptions, including relative levels of market
interest rates, prepayments, and deposit run-offs, and should not be relied upon
as indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar maturity
or periods of repricing, they may react at different times and in different
degrees to changes in the market interest rates. The interest rate on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while rates on other types of assets and liabilities may lag
behind changes in market interest rates. Certain assets, such as adjustable rate
mortgages, generally have features that restrict changes in interest rates on a
short-term basis and over the life of the asset. After a change in interest
rates, prepayments and early withdrawal levels could deviate significantly from
those assumed in making calculations set forth above. Additionally, an increased
credit risk may result if our borrowers are unable to meet their repayment
obligations as interest rates increase.
The following table presents our NPV as of September 30, 2000. The NPV was
calculated by the OTS, based upon the above model assumptions and financial
information provided by the Company. As illustrated in the table, the
calculations show that the Company would be adversely affected by increases in
interest rates and favorably affected by decreases in interest rates.
NPV as % of Present
Net Portfolio Value ("NPV") Value of Assets
---------------------------------- -----------------------
Change Basis Point
In Rates $ Amount $ Change % Change NPV Ratio Change
-------- -------- -------- -------- --------- ------
(Dollars in thousands)
+300 bp 13,308 -39,906 -75% 2.51% -668 bp
+200 bp 26,303 -26,911 -51% 4.81% -437 bp
+100 bp 39,711 -13,504 -25% 7.06% -213 bp
0 bp 53,214 9.19%
-100 bp 65,194 +11,980 +23% 10.97% +178 bp
-200 bp 74,084 +20,869 +39% 12.21% +303 bp
-300 bp 82,582 +29,368 +55% 13.35% +416 bp
The OTS defines the sensitivity measure as the change in NPV ratio with a 200
basis point shock. Our sensitivity measure reflects a 437 basis point decline in
NPV ratio as of September 30, 2000 compared to a sensitivity measure of 280
basis points as of September 30, 1999. The decline in our sensitivity measure at
September 30, 2000 primarily reflects the significant increase in short-term
borrowing interest rates from September 30, 1999. See "Business of FloridaFirst
Bank -- Borrowings."
Our strategies for addressing the sensitivity measure indicators are as follows:
o Reviewing the average lives and durations of our loans and investment
securities;
o Reviewing deposit offerings and alternative funding sources to better match
the durations of the assets;
o Providing an additional capital contribution from the Company to the Bank;
and
o Performing, on a quarterly basis, a business simulation that more clearly
reflects an on-going business assumption, rather than relying solely on the
OTS model which more closely approximates a liquidation value model.
32
Comparison of Financial Condition at September 30, 2000 and September 30, 1999
Assets. Total assets increased $83.8 million, or 16.8%, to $582.2 million at
September 30, 2000 from $498.4 million at September 30, 1999. The increase in
total assets resulted primarily from an $42.5 million, or a 10.7% annualized
increase in the loan portfolio attributable to steady loan demand in our market
areas, a slow down in loan prepayments and funding of construction loans. In
addition, investment securities increased $25.5 million. Management plans to
focus on loan growth to effectively leverage its capital. The capital leveraging
strategy will include the purchase of investment securities to complement its
loan origination efforts.
Premises and equipment increased $2.1 million primarily due to the purchase of a
tract of land for $1.2 million and capital expenditures to implement the initial
phases of the strategic technology plan. The tract of land contains over four
acres. After the determination of the land needed for a branch site, plans call
for the sale of the excess land to recoup a substantial portion of the original
investment.
The $3.5 million increase in our investment in FHLB stock is directly
attributable to our increased utilization of FHLB advances for funding purposes.
Other assets increased primarily due to the cash surrender value of bank owned
life insurance policies that were purchased in January 2000.
Liabilities. Total liabilities increased $84.1 million, or 19.2%, to $521.1
million at September 30, 2000 from $437.0 million at September 30, 1999. The
increase in total liabilities resulted primarily from a $70.4 million net
increase in FHLB advances utilized to fund the asset growth and a net deposit
increase of $15.3 million. The increase in deposits in the last half of the year
reflects renewed consumer interest in competitively priced certificates of
deposit due to the increase in short-term interest rates. Checking and money
market accounts continue to grow through expansion of our customer base.
Management continues to evaluate the available funding sources. The attributes
of the alternative funding sources that management considers in its analysis
include the interest and other costs of such funding, the maturity
considerations and the nature and characteristics of assets being funded.
Stockholders' Equity. Net income for the year ended September 30, 2000 increased
stockholders' equity by $3.8 million, however, the decrease in stockholders'
equity for the year reflects:
o repurchase of 405,578 shares of the Company's stock at a cost of $3.6
million;
o repurchase of 57,879 shares of the Company's stock for the restricted stock
plan at a cost of $449,000, less shares issued at a cost of approximately
$39,000;
o repayment of $325,000 on the ESOP loan; and
o dividends paid that totaled $373,000.
33
Comparison of Financial Condition at September 30, 1999 and 1998
Assets. Total assets increased $83.9 million, or 20.2%, to $498.4 million at
September 30, 1999 from $414.5 million at September 30, 1998. The increase in
total assets resulted primarily from: a $59.3 million increase in net loans
outstanding from new originations; an increase in investments available for sale
portfolio of $25.9 million due to a financial leveraging strategy implemented
after the issuance of stock; a reduction in investments held to maturity of $6.0
million due to the maturity and calls of securities; and an increase in Federal
Home Loan Bank stock of $1.6 million.
Liabilities. Total liabilities increased $58.6 million, or 15.5%, to $437.0
million at September 30, 1999 from $378.4 million at September 30, 1998. The
increase in total liabilities resulted primarily from: a $66.6 million increase
in Federal Home Loan Bank advances; a $4.9 million increase in other borrowings;
and a $13.0 million net outflow in deposits. The increase in the Federal Home
Loan Bank advances and other borrowings utilized to fund the loan and investment
growth was attributable to:
o the decision to not offer premium pricing on deposits to customers without
other banking relationships;
o disintermediation of customer funds due to alternative investment
opportunities; and
o management's decision to financially leverage the higher level of capital
of the Company to increase earnings.
Deposits, excluding the $19.6 million decrease in certificate of account
balances, grew $6.6 million, or 7.3%, during the year.
Stockholders' Equity. The $25.2 million increase in the stockholders' equity
reflects the $23.5 million in net proceeds from the issuance of common stock,
$25.7 million in net offering proceeds reduced by the $2.2 million in stock held
by the employee stock ownership plan that has not been allocated to the
participants, $3.3 million in net income for the year ended September 30, 1999
and a net reduction in equity of $1.4 million resulting from the decline in
value of the Company's investments available for sale portfolio. The decline in
value of the investments is directly attributable to the significant rise in
interest rates during the second half of the fiscal year.
Liquidity and Capital Resources
The liquidity of a savings institution reflects its ability to provide funds to
meet loan requests, to accommodate possible outflows in deposits, and to take
advantage of market opportunities. Funding loan requests, providing for
liability outflows, and managing interest rate fluctuations require continuous
analysis in order to match the maturities of short-term loans and investments
with specific types of deposits and borrowings. An institution's liquidity is
normally considered in terms of the nature and mix of the institution's sources
and uses of funds.
Assets providing liquidity are generated through loan repayments and the
management of maturity distributions for loans and securities. An important
aspect of liquidity management lies in maintaining sufficient levels of loans
and mortgage-backed securities that generate monthly cash flows.
34
Cash and cash equivalents increased $4.1 million to $6.7 million for the year
ended September 30, 2000. Significant cash flows or uses (amounts shown in
parentheses) were as follows:
(In millions)
-------------
Cash provided by operations............................................ $ 4.3
Federal Home Loan Bank advances and other borrowings................... 68.5
Increase in net deposits............................................... 15.3
Maturities of and repayments on investment securities.................. 19.4
Net purchases of investment securities and FHLB stock.................. (48.3)
Net increase in loans.................................................. (42.8)
Purchase of bank owned life insurance.................................. (5.0)
Payments to acquire treasury stock and restricted stock plan shares.... (4.0)
Other - net............................................................ (3.3)
----
Net increase in cash and cash equivalents.............................. 4.1
====
The Company is subject to federal regulations that impose certain minimum
capital requirements. For a discussion on such capital levels, see Note 11 in
the consolidated financial statements.
Except for the new capital generated through the second step mutual holding
company conversion (see Note 15 in the consolidated financial statements),
management is not aware of any known trends, events or uncertainties that will
have or are reasonably likely to have a material effect on the Company's
liquidity, capital or operations nor is management aware of any current
recommendation by regulatory authorities, which if implemented, would have such
an effect.
Analysis of Net Interest Income
Historically, the Company's earnings have depended primarily on its net interest
income, which is the difference between interest income earned on its loans and
investments ("interest-earning assets") and interest paid on its deposits and
any borrowed funds ("interest-bearing liabilities"). Net interest income is
affected by:
o the interest rate spread - the difference between rates of interest earned
on interest-earning assets and rates paid on its interest-bearing
liabilities; and
o the aggregate amounts of its interest-earning assets and interest-bearing
liabilities.
35
Average Balance Sheet. The following table sets forth certain information
relating to the Company for the periods indicated. The average yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods presented. Similar information is
provided as of September 30, 2000. Average balances are derived from month-end
balances. Management does not believe that the use of month-end balances instead
of average daily balances has caused any material differences in the information
presented.
Year ended September 30,
-------------------------------------------------------------------------------------
September 30, 2000 2000 1999 1998
------------------ -------------------------- --------------------------- ---------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Rate Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- ---- ------- -------- ---- ------- -------- ---- ------- -------- ----
(Dollars in thousands)
Interest-earning
assets:
Loans
receivable (1) $443,707 7.83% $423,409 $ 32,470 7.67% $368,513 $ 28,482 7.73% $339,218 $ 27,241 8.03%
Investment
securities
and other (2)(6) 112,556 7.06 102,800 7,592 7.39 71,557 4,314 6.03 85,594 4,900 5.72
-------- -------- -------- -------- -------- -------- --------
Total interest-
earning assets 556,263 7.67 526,209 40,062 7.61 440,070 32,796 7.45 424,812 32,141 7.57
-------- -------- --------
Noninterest-earning
assets 25,917 19,890 11,606 12,557
-------- -------- -------- --------
Total assets $582,180 $546,099 $451,676 $437,369
======== ======== ======== ========
Interest-bearing
liabilities:
Checking accounts $ 31,460 1.86 $ 31,416 576 1.83 $ 27,193 486 1.79 $ 25,177 469 1.86
Savings accounts 29,167 2.08 31,012 581 1.87 36,469 612 1.68 41,456 859 2.07
Money market accounts 24,325 5.10 25,008 1,068 4.27 20,740 796 3.84 15,356 582 3.79
Certificate accounts 253,310 5.89 245,754 13,519 5.50 245,915 12,833 5.22 301,093 16,921 5.62
-------- -------- -------- -------- -------- -------- --------
Total deposits 338,262 5.13 333,190 15,744 4.73 330,317 14,727 4.46 383,082 18,831 4.92
FHLB advances and
other borrowings 160,937 6.29 132,054 7,831 5.93 49,884 2,401 4.81 2,647 135 5.10
-------- -------- -------- -------- -------- -------- --------
Total interest-
bearing
liabilities 499,199 5.50 465,244 23,575 5.07 380,201 17,128 4.50 385,729 18,966 4.92
-------- -------- --------
Noninterest-bearing
liabilities (3) 21,900 21,094 22,491 15,246
-------- -------- -------- --------
Total liabilities 521,099 486,338 402,692 400,975
Stockholders' equity 61,081 59,761 48,984 36,394
-------- -------- -------- --------
Total liabilities
and stockholder's
equity $582,180 $546,099 $451,676 $437,369
======== ======== ======== ========
Net interest income $ 16,487 $ 15,668 $ 13,175
======== ======== ========
Interest rate spread (4) 2.17% 2.54% 2.95% 2.65%
==== ==== ==== ====
Net margin on interest-
earning assets (5) 2.73% 3.13% 3.56% 3.10%
==== ==== ==== ====
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities 111% 113% 116% 110%
==== ==== ==== ====
- --------------------
(1) Average balances include non-accrual loans.
(2) Investment securities includes both securities that are available for sale
and held to maturity. Includes interest-bearing deposits in other financial
institutions and FHLB stock.
(3) Includes noninterest-bearing checking accounts.
(4) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(5) Net margin on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
(6) Interest income and net interest income do not agree to the consolidated
statement of earnings because the tax equivalent income (based on effective
tax rate of 34%) on municipal bonds is included in this schedule.
36
Rate/Volume Analysis. The relationship between the volume and rates of the
Company's interest-earning assets and interest-bearing liabilities affects the
Company's net interest income. The following table reflects the sensitivity of
the Company's interest income and interest expense to changes in volume and in
prevailing interest rates during the periods indicated. Each category reflects
the: (1) changes in volume (changes in volume multiplied by old rate); (2)
changes in rate (changes in rate multiplied by old volume); and (3) net change.
The net change attributable to the combined impact of volume and rate has been
allocated proportionally to the absolute dollar amounts of change in each.
Year Ended September 30, Year Ended September 30,
----------------------------- -----------------------------
2000 vs. 1999 1999 vs. 1998
----------------------------- -----------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
----------------------------- -----------------------------
Volume Rate Net Volume Rate Net
------- ------- ------- ------- ------- -------
(Dollars in thousands)
Interest income:
Loans receivable ................ $ 4,208 $ (220) $ 3,988 $ 2,196 $ (955) $ 1,241
Investment securities and other . 2,163 1,115 3,278 (867) 281 (586)
------- ------- ------- ------- ------- -------
Total interest-earning assets .. $ 6,371 $ 895 $ 7,266 $ 1,329 $ (674) $ 655
======= ======= ======= ======= ======= =======
Interest expense:
Checking accounts ................ $ 77 $ 13 $ 90 $ 34 $ (17) $ 17
Savings accounts ................. (140) 109 (31) (96) (151) (247)
Money market accounts ............ 176 96 272 207 7 214
Certificates of deposit .......... (8) 694 686 (2,941) (1,147) (4,088)
FHLB advances and other borrowings 4,760 670 5,430 2,273 (7) 2,266
------- ------- ------- ------- ------- -------
Total interest-bearing
liabilities .............. $ 4,865 $ 1,582 $ 6,447 $ (523) $(1,315) $(1,838)
======= ======= ======= ======= ======= =======
Change in net interest income .... $ 1,506 $ (687) $ 819 $ 1,852 $ 641 $ 2,493
======= ======= ======= ======= ======= =======
37
Comparison of Operating Results for the Years Ended September 30, 2000 and
September 30, 1999
Net Income. Net income for the year ended September 30, 2000 increased 18.0% to
$3.8 million, compared to $3.3 million for the same period in 1999. Net income
for the year ended September 30, 2000 benefitted from the deployment of $23.5
million in new capital received from stock issued in April 1999.
Net interest income increased $745,000, or 4.8%, for the year ended September
30, 2000 compared to the same period in 1999. This increase resulted primarily
from interest income increasing $7.2 million, offset by an increase in interest
expense of $6.4 million , Other income increased by $641,000 from 1999 to 2000
due mainly to increase in cash surrender value on the bank owned life insurance
product and increased fees from consumer related products, and Other expenses
increased to $11.8 million for the year ended September 30, 2000 from $11.4
million for the year ended September 30, 1999, due to an accumulation of several
expense categories, as discussed below.
Interest Income. The following discussion highlights the major factors that
impacted the changes in interest income during the year ended September 30, 2000
when compared to the prior year. Details are contained in the table at page 36.
o Loan growth reflects the strong loan demand over the past year and the
Company's increased emphasis on loan origination efforts.
o The yield on loans decreased slightly due to the competitive pricing for
commercial and consumer loans in our market areas. Although new mortgage
loan rates increased throughout most of the year, about 50% of the
Company's new originations were construction loans that were not fully
disbursed during the year. In addition, construction loans that were
originated in 1999 when mortgage loan rates were lower were funded during
2000. The result of the timing on the construction loan disbursements kept
the yields on mortgage loans from increasing in relation to the overall
increase in mortgage loan pricing.
o The average balances in the investment securities portfolio grew 44%
primarily due to the Company's strategy to leverage capital that was raised
in the stock offering.
o The higher yield in the investment portfolio resulted from the leveraging
strategy in the latter part of fiscal 1999 and throughout fiscal 2000 when
rates had risen significantly over the prior year. In addition, the
investment growth occurred in securities that had slightly longer average
lives with higher yields.
Interest Expense. The following discussion highlights the major factors that
impacted the changes in Interest Expense during the year ended September 30,
2000 when compared to the prior year. Detailed changes are contained in the
table at page 36.
o Deposits remained fairly level primarily by maintaining a conservative
deposit pricing strategy, utilizing more cost effective funding
alternatives that are available for the terms the Company has considered
appropriate to fit its interest rate management strategies. This was offset
however, by special promotions to increase certificate accounts. The growth
in checking account average balances has helped offset the slight decline
in certificate accounts.
o FHLB advances grew because the Company considered the advances to be a more
cost-effective funding alternative during the course of the year. Although
the costs of the advances exceed the cost of certificate accounts, funding
asset growth through certificate accounts was deemed to be more expensive
than wholesale funding.
o The higher cost of funds related to the FHLB advances is reflective of the
significant rise in interest rates over the past year.
38
Provision for Loan Losses. The provision for loan losses is charged to
operations to bring the total allowance for loan losses to a level that
represents management's best estimates of the losses inherent in the portfolio,
based on historical experience, volume and type of lending conducted by the
Company, industry standards, the level and status of past due and non-performing
loans, the general economic conditions in the Company's lending area and other
factors affecting the collectibility of the loans in its portfolio. For the year
ended September 30, 2000, the provision for loan losses was $630,000 compared to
$540,000 for the comparable 1999 period. The allowance for loan losses at
September 30, 2000 increased $380,000 from September 30, 1999. Though our
non-performing loans decreased $68,000 for the period, our classified assets
increased slightly and our commercial and consumer loans increased in the
aggregate of approximately $16.7 million from September 30, 1999. Such increases
in classified loans and commercial and consumer loans precipitated the increase
in the provision for loan losses. See, "Business of FloridaFirst Bank --
"Lending Activities" and --"Classified Assets."
Other Expenses. Other expense increased by $365,000 to $11.8 million for the
year ended September 30, 2000 from $11.4 million for the year ended September
30, 1999. The major components of the increase was due to the following:
o Compensation and employee benefits increased $505,000 due primarily to an
approximate 5% increase in staffing and annual salary adjustments and
recognition of $180,000 related to the restricted stock plan.
o Other expenses increased by $202,000 primarily due to the following:
o certain Year 2000 costs totalling $50,000;
o direct costs related to stockholder meetings, communications, legal
matters and new financial reporting requirements as a public company
totalling $45,000;
o increased effort on charging off uncollected fees and overdrawn
accounts totalling $90,000; o accelerated vesting of restricted stock
due to the death of a director totalling $35,000.
o Offsetting the increase in other expenses was a decrease of:
o occupancy and equipment costs of $126,000 primarily due to the
elimination of franchise taxes previously accrued in property taxes;
and
o federal insurance premiums of $111,000 due to the decrease in premium
rates by the FDIC on January 1, 2000.
The Board of Directors and management have developed expansion plans that
includes three de novo branches within our existing market areas and deployment
of a strategic technology plan. The strategic technology plan includes:
o installing a new customer delivery software to enhance the sales efforts;
o enhancing both our data and voice communications systems;
o upgrading our computer network for enhanced service and security features;
o implementing internal and external networks to improve communications and
productivity; and
o investigation of alternative delivery systems, including an Internet
banking solution and enhanced call center strategy.
39
A summary of the estimated costs associated with the new projects follows (in
thousands):
Estimated Costs Estimated Costs
Category Fiscal 2001 Fiscal 2002
- -------- ----------------- --------------
New branches......................................... $ 650 $ 975
New computer hardware and software................... 240 240
Other costs related to strategic technology plan..... 240 240
------ ------
Total........................................... $1,130 $1,455
====== ======
The Board of Directors and management analyzed the potential effect of each of
these expenditures prior to approval and believe that these expenditures will
have an overall positive effect on the Company's franchise and stockholder
value, but also realize that the expenditures will most likely depress
profitability ratios in the short-term. The Company also expects that both net
interest income and fee income will increase as a result of the new branches and
new technology enhancements. However, it is not possible to precisely estimate
such revenue increases, if any, at this time. The success of new projects is
dependent upon a number of factors, including, but not limited to, general
economic conditions, regulatory climate, interest rates and the success of the
Company's marketing efforts.
Comparison of Operating Results for Years Ended September 30, 1999 and September
30, 1998
Net Income. Net income for the year ended September 30, 1999 increased 37.5% to
$3.3 million, compared to $2.4 million for the year ended September 30, 1998.
o Net interest income increased 17.4% to $15.5 million for the year ended
September 30, 1999 compared to $13.2 million for the year ended September
30, 1998. This increase resulted from an increase in interest income of $
507,000 and a decrease in interest expense of $1.8 million.
o Other income decreased to $1.5 million for the year ended September 30,
1999 from $4.3 million for the year ended September 30, 1998, resulting
primarily from a $3.0 million gain from the sale of certain deposits and
branch buildings, as further discussed in the notes to consolidated
financial statements.
o Other expenses decreased to $11.4 million for the year ended September 30,
1999 from $13.6 million for the year ended September 30, 1998. This
decrease is due primarily to $2.2 million in charges resulting from the
freezing of benefits under the defined benefit pension plan - $1.7 million,
and the adoption of a directors' retirement plan - $410,000, as further
discussed in the notes to the consolidated financial statements.
Interest Income. Total interest income increased to $32.6 million for the year
ended September 30, 1999 from $32.1 million for the year ended September 30,
1998, as a result of an increase in average interest-earning assets offset to
some extent by a decrease in the average interest rates earned. Average
interest-earning assets increased to $440.1 million for the year ended September
30, 1999 from $424.8 million for the year ended September 30, 1998, an increase
resulting from strong loan growth throughout the year. The average rate earned
on interest-earning assets decreased to 7.45% for the year ended September 30,
1999 from 7.57% for the year ended September 30, 1998, a decrease of 12 basis
points.
Interest income on loans increased $1.2 million to $28.5 million for the year
ended September 30, 1999 from $27.2 million for the year ended September 30,
1998. This increase reflects the strong loan growth in all areas mortgage,
consumer and commercial loans. Total loan originations were $158.9 million in
1999 compared to $119.6 million in 1998, a 33% increase in origination volume.
The strong originations were
40
offset by substantial repayments and refinance activity. Also, the Branch Sale
at the end of January 1998 reduced the loan portfolio by $44.6 million, meaning
that 1998 results had income on these loans for four months of the year. In
addition, the average yield on loans decreased by 30 basis points during the
year, reflecting the general downward trend in interest rates for the first half
of the fiscal year. Mortgage loan rates began to increase late in the year, but
the competitive pressures in the consumer and commercial markets kept rates
lower for the entire year in 1999 when compared to 1998.
Interest income on investment securities and other investments decreased
$734,000 to $4.2 million for the year ended September 30, 1999 from $4.9 million
for the year ended September 30, 1998. This decrease was primarily the result of
a $14.0 million decrease in the average balance to $71.6 million in 1999 from
$85.6 million in 1998. The decrease in the average balance of investment
securities was due primarily to the maturities and calls of certain securities
and the redeployment of these funds into loans. The decrease in average balances
was partially offset by an increase in the average yield by 31 basis points
through the diversification of the portfolio, extension of maturities, reduction
in interest-earning deposit accounts and a rising interest rate environment
during the last half of the year.
Interest Expense. Total interest expense decreased by $1.8 million to $17.1
million for the year ended September 30, 1999 from $18.9 million for the year
ended September 30, 1998, as a result of a 42 basis point decrease in average
cost of funds and a $5.5 million decrease in the average interest-bearing
liabilities. Average interest-bearing liabilities decreased to $380.2 million
for the year ended September 30, 1999 from $385.7 million for the year ended
September 30, 1998. The average cost for interest-bearing liabilities was 4.50%
for the year ended September 30, 1999 compared to 4.92.% for the year ended
September 30, 1998, a decrease of 42 basis points. The decrease in rates paid on
interest-bearing liabilities reflects market rates as well as the replacement of
higher cost certificates of deposit with Federal Home Loan Bank advances and
lower cost checking and money market accounts.
Interest expense on deposits decreased $4.1 million to $14.7 million for the
year ended September 30, 1999 from $18.8 million for the year ended September
30, 1998. This decrease was a result of a decrease of $52.8 million in the
average balance of interest-bearing deposits to $330.3 million in 1999 from
$383.1 million in 1999 and a decrease of 46 basis points in the average cost of
deposits to 4.46% in 1999 from 4.92% in 1998.
The Company began using Federal Home Loan Bank advances in June 1998 to control
its cost of funds and lengthen the maturity of its liabilities. The Company
manages the maturity of its advances based on the assets being funded and based
on projections of interest rate trends and has used the Federal Home Loan Bank
advances as a major funding source due to the ability to manage the maturities,
the cost effectiveness in executing the transactions and the level of interest
rates offered compared to alternative funding sources. The average costs of
advances in 1999 was 4.81% which compares favorably with the average cost for
certificates of deposit which averaged 5.22%.
Provision for Loan Losses. The provision for loan losses is charged to
operations to bring the total allowance for loan losses to an amount that
represents management's best estimate of the losses inherent in the loan
portfolio, based on historical experience, volume and type of lending conducted
by the Company, industry standards, the level and status of past due and
non-performing loans, the general economic conditions in its lending area and
other factors affecting the collectibility of the loans in its portfolio. The
provision for loan losses was $540,000 for the year ended September 30, 1999
compared to $405,000 for the year ended September 30, 1998. The allowance for
loan losses increased to $2.9 million for the year ended September 30, 1999 from
$2.6 million for the year ended September 30, 1998, due primarily to the
increase in net loans outstanding. The current allowance represents .74% of
loans outstanding at September 30, 1999. The Company had net charge-offs of
$163,000 for the year ended September 30, 1999 compared to net
41
charge-offs of $474,000 for the year ended September 30, 1998. See also,
"Business of FloridaFirst Bank -- Allowance for Loan Losses and Real Estate
Owned."
Other Income. Substantially the entire decrease in Other Income for the year
ending September 30, 1999 compared to September 30, 1998 is attributable to the
$3.0 million gain from the branch sale in January 1998.
Other Expenses. Other expense decreased by $2.1 million to $11.4 million for the
year ended September 30, 1999 from $13.5 million for the year ended September
30, 1998, due primarily to $1.7 million of costs related to the Company's
decision to terminate the defined benefit pension plan and the adoption of a
directors' retirement plan. In addition, compensation and employee benefits
increased slightly due to the hiring of additional sales personnel and an
average 4% increase in salary adjustments. These costs were offset by certain
vacancies in staff positions during the year and savings related to compensation
and employee benefits for personnel at the branches involved in the branch sale
in January 1998. Occupancy and equipment costs increased due to costs associated
with the installation and operation of automated teller machines at all branch
locations in 1999.
Impact of Inflation and Changing Prices
The consolidated financial statements and accompanying notes presented elsewhere
in this prospectus have been prepared in accordance with generally accepted
accounting principles which generally requires the measurement of financial
position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time and
due to inflation. The impact of inflation is reflected in the increased cost of
the Company's operations. As a result, interest rates have a greater impact on
the Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or, to the same
extent, as prices of goods and services.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
See Item 7.
42
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The consolidated financial statements, footnotes and report of independent
auditor are included in this item as listed in the index below.
Page
----
Consolidated Statements of Financial Condition at September 30, 2000 and 1999...................... 44
Consolidated Statements of Earnings for the years ended
September 30, 2000, 1999 and 1998............................................................... 45
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for the years ended September 30, 2000, 1999 and 1998........................................... 46
Consolidated Statements of Cash Flows for the years ended
September 30, 2000, 1999 and 1998............................................................... 47
Notes to Consolidated Financial Statements......................................................... 48
Report of Independent Auditors..................................................................... 74
FLORIDAFIRST BANCORP and SUBSIDIARY
Consolidated Statements of Financial Condition
(Dollars in thousands, except share data)
September 30,
ASSETS 2000 1999
------------- -------------
Cash and cash equivalents $ 6,734 $ 2,598
Investments available for sale, at fair value 96,661 68,152
Investment securities held to maturity,
market value of $9,391 and $12,479 9,687 12,724
Loans receivable, net of allowance for loan losses
of $3,321 and $2,941 440,386 397,910
Premises and equipment, net 8,935 6,818
Federal Home Loan Bank stock, at cost 7,925 4,475
Accrued interest receivable 3,726 2,764
Other assets 8,126 2,917
-------- --------
TOTAL ASSETS $582,180 $498,358
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $354,554 $339,224
Federal Home Loan Bank advances 158,000 87,600
Other borrowings 2,937 4,872
Advance payments by borrowers for taxes and insurance 2,471 2,200
Other liabilities 3,137 3,125
-------- --------
Total liabilities 521,099 437,021
-------- --------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $ .10 par value,
2,000,000 shares authorized, none outstanding - -
Common stock, $ .10 par value,
18,000,000 shares authorized, 5,752,875 outstanding 575 575
Additional paid-in capital 25,085 25,124
Retained earnings 42,506 39,037
Treasury stock, at cost, 405,578 and -0- shares (3,606) -
Unallocated shares held by the employee stock ownership plan (1,838) (2,163)
Unallocated shares held by the restricted stock plan (410) -
Accumulated other comprehensive loss (1,231) (1,236)
-------- --------
Total stockholders' equity 61,081 61,337
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $582,180 $498,358
======== ========
See notes to consolidated financial statements.
44
FLORIDAFIRST BANCORP and SUBSIDIARY
Consolidated Statements of Earnings
(Dollars in thousands, except per share data)
Year ended September 30,
2000 1999 1998
------------ ----------- ------------
Interest income:
Interest and fees on loans $ 32,470 $ 28,482 $ 27,241
Interest and dividends on investment securities 6,837 3,671 3,906
Other interest income 533 495 994
--------- --------- -------
Total interest income 39,840 32,648 32,141
--------- --------- -------
Interest expense:
Deposits 15,744 14,727 18,831
Federal Home Loan Bank advances and other borrowings 7,831 2,401 135
--------- --------- -------
Total interest expense 23,575 17,128 18,966
--------- --------- -------
Net interest income 16,265 15,520 13,175
Provision for loan losses 630 540 405
--------- --------- -------
Net interest income after provision for loan losses 15,635 14,980 12,770
--------- --------- -------
Other income:
Fees and service charges 1,147 991 996
Gain (loss) on sale of loans and investments available for sale 16 (22) 117
Gain on sale of branches - 165 3,016
Other, net 951 339 218
--------- --------- -------
Total other income 2,114 1,473 4,347
--------- --------- -------
Other expenses:
Compensation and employee benefits 6,325 5,820 5,632
Other compensation and employee benefits - - 2,085
Occupancy and equipment costs 1,755 1,881 1,818
Marketing 452 534 495
Data processing costs 498 521 558
Federal insurance premiums 103 214 338
Other 2,680 2,478 2,655
--------- --------- -------
Total other expenses 11,813 11,448 13,581
--------- --------- -------
Income before income taxes 5,936 5,005 3,536
Income taxes 2,094 1,748 1,151
--------- --------- -------
NET INCOME $ 3,842 $ 3,257 $ 2,385
========= ========= =======
Basic earnings per share (1) $ 0.73 $ 0.34 -
========= ========= =======
Diluted earnings per share (1) $ 0.72 $ 0.34 -
========= ========= =======
Weighted average common and common equivalents shares outstanding: (1)
Basic 5,255,644 5,549,185 -
========= ========= =======
Diluted 5,344,986 5,549,185 -
========= ========= =======
(1) FloridaFirst converted to a stock company on April 6, 1999. Earnings per
share and weighted average shares outstanding for 1999 represent the six
months ended September 30, 1999 (period subsequent to the conversion.)
See notes to consolidated financial statements.
45
FLORIDAFIRST BANCORP and SUBSIDIARY
Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Dollars in thousands, except per share data)
Accumulated
Additional other Unallocated Unallocated Total
Common paid-in Retained Treasury comprehensive Comprehensive shares held shares held stockholders'
stock capital earnings Stock income (loss) income by the ESOP by RSP equity
-------- ----------- ---------- ---------- ------------- ------------- ------------ ----------- ------------
Balance at
September 30, 1997 $ 33,502 $ 86 $ 33,588
Comprehensive income:
Net income $ 2,385
2,385 2,385
Change in
unrealized gain
on investments
available
for sale, net 134 134 134
-----------
Total comprehensive
income $ 2,519
---------- ------------ =========== -------------
Balance at
September 30, 1998 35,887 220 36,107
Stock issuance,
net of issuance
costs of $1,239 $ 575 $ 25,124 $ (2,163) 23,536
Comprehensive income:
Net income 3,257 $ 3,257 3,257
Change in
unrealized loss
on investments
available for
sale, net (1,456) (1,456) (1,456)
-----------
Total
comprehensive
income $ 1,801
===========
Dividends
($ .04 per share) (107) (107)
-------- ----------- ---------- ------------ ----------- -------------
Balance at
September 30, 1999 575 25,124 39,037 (1,236) (2,163) 61,337
Shares repurchased,
at cost $(3,606) (3,606)
Fair value of ESOP
shares allocated (39) 325 286
Shares acquired for
RSP, at cost $ (410) (410)
Comprehensive income:
Net income 3,842 $ 3,842 3,842
Change in
unrealized loss
on investments
available for
sale, net 5 5 5
-----------
Total comprehensive
income $ 3,847
===========
Dividends
($ .16 per share) (373) (373)
-------- ----------- ---------- ---------- ------------ ----------- ------------ -------------
Balance at
September 30, 2000 $ 575 $ 25,085 $ 42,506 $(3,606) $ (1,231) $ (1,838) $ (410) $ 61,081
======== =========== ========== ========== ============ =========== ============ =============
Year ended September 30,
Disclosure of reclassification amount: 2000 1999 1998
---------- ---------- ------------
Unrealized gain (loss) on investments
available for sale arising during year,
net of taxes $ 8 $(1,470) $ 210
---------- ---------- ------------
Less reclassification adjustment for
gain (loss) included in net income 5 (22) 117
Income taxes (benefit) 2 (8) 41
---------- ---------- ------------
Reclassification adjustment for
gain (loss), net of taxes 3 (14) 76
---------- ---------- ------------
Unrealized gain (loss) on investments
available for sale, net of taxes $ 5 $(1,456) $ 134
========== ========== ============
See notes to consolidated financial statements.
46
FLORIDAFIRST BANCORP and SUBSIDIARY
Consolidated Statements of Cash Flows
(Dollars in thousands)
Year ended September 30,
2000 1999 1998
--------- ---------- ---------
Cash flows from operating activities:
Net income $ 3,842 $ 3,257 $ 2,385
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses 630 540 405
Deferred income taxes (benefit) (187) (39) (864)
Depreciation 700 759 632
(Gain) loss on sale of investments available for sale (5) 22 (117)
Gain on sale of branches - (165) (3,016)
Decrease (increase) in accrued interest receivable (962) (366) 295
Decrease (increase) in other assets (22) 95 166
Increase (decrease) in other liabilities 119 (402) 2,118
Increase (decrease) in advance payments by borrowers for taxes and insurance 271 229 (33)
--------- ---------- ---------
Net cash provided by operating activities 4,386 3,930 1,971
--------- ---------- ---------
Cash flows from investing activities:
Purchase of FHLB stock, net (3,450) (1,611) -
Proceeds from sales, maturity and repayments of investments available for sale 16,353 24,069 28,930
Proceeds from maturity and repayments of investment securities held to
maturity 3,037 6,012 19,000
Proceeds from sale of assets 26 520 1,824
Net increase in loans (42,827) (59,782) (30,299)
Purchases of premises and equipment (2,843) (883) (434)
Purchases of investments available for sale (44,845) (52,358) (33,981)
Purchase of bank owned life insurance (5,000) - -
Cash transferred in connection with sale of branches, net - - (10,186)
--------- ---------- ---------
Net cash used in investing activities (79,549) (84,033) (25,146)
--------- ---------- ---------
Cash flows from financing activities:
Net increase (decrease) in deposits 15,330 (12,956) (19,020)
Net increase in FHLB advances 70,400 66,600 21,000
Payments to acquire treasury stock (3,606) - -
Payments to acquire shares held by the RSP (410) - -
Net increase (decrease) in other borrowings (1,935) 4,874 -
Dividends paid (480) - -
Net proceeds received from issuance of common stock - 23,536 -
--------- ---------- ---------
Net cash provided by financing activities 79,299 82,054 1,980
--------- ---------- ---------
Net increase (decrease) in cash and cash equivalents 4,136 1,951 (21,195)
Cash and cash equivalents at beginning of period 2,598 647 21,842
--------- ---------- ---------
Cash and cash equivalents at end of period $ 6,734 $ 2,598 $ 647
========= ========== =========
Supplemental disclosure of cash flow information -
Cash paid during the year for:
Interest $ 22,966 $ 15,963 $ 18,971
========= ========== =========
Taxes $ 2,099 $ 1,406 $ 2,557
========= ========== =========
Supplemental disclosure of non-cash information:
Additions to investment in real estate acquired through foreclosure $ 221 $ 76 $ 2,238
========= ========== =========
Change in unrealized gain (loss) on investments available for sale,
net of deferred taxes (benefit) of $3, $(852), and $79, respectively $ 5 $ (1,456) $ 134
========= ========== =========
Dividends declared $ 107
==========
Net assets transferred in connection with branch sale:
Loans receivable $ 44,607
Premises and equipment 705
Deposits 55,498
=========
See notes to consolidated financial statements.
47
FLORIDAFIRST BANCORP and SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2000, 1999 and 1998
(1) Reorganization
On April 6, 1999, FloridaFirst Bank (the "Bank") completed its mutual to
stock conversion including the formation of mutual and stock holding
companies ("Reorganization"). In connection with the Reorganization,
FloridaFirst Bancorp, a federally chartered corporation, sold 2,703,851
shares (or 47%) of its common stock in a subscription offering at $10.00
per share and issued the remaining 53% to FloridaFirst Bancorp MHC. A
total of 5,752,875 shares of common stock of FloridaFirst Bancorp were
issued in connection with the Reorganization. Upon completion of these
transactions, the Bank became the wholly owned subsidiary of FloridaFirst
Bancorp (the "Bancorp"). The Reorganization was accounted for in a manner
similar to a pooling of interests.
Gross proceeds from the stock issuance of $27.0 million were reduced by
$1.2 million in subscription related expenses and $100,000 initial
capital for FloridaFirst Bancorp MHC ("MHC"), leaving net proceeds of the
offering of $25.7 million. The Bancorp recorded $575,288 as capital stock
based on the 5,752,875 shares issued (3,049,024 were issued to the MHC)
at a $.10 par value, with the remaining $25.1 million recorded as
additional paid-in capital. Of the net proceeds, the Bancorp contributed
$12.9 million to the Bank in exchange for all of its outstanding shares
of stock.
Upon a complete liquidation of the Bank after the Reorganization, the
Bancorp, as holder of the Bank's common stock, would be entitled to any
assets remaining upon a liquidation or dissolution of the Bank. Each
depositor would not have a claim in the assets of the Bank. However, upon
a complete liquidation of the MHC after the Reorganization, each
depositor would have a claim up to the pro rata value of his or her
accounts, in the assets of the MHC remaining after the claims of the
creditors of the MHC are satisfied. Depositors who have liquidation
rights in the Bank immediately prior to the Reorganization will continue
to have such rights in the MHC after the Reorganization for so long as
they maintain qualifying deposits in the Bank after the Reorganization.
The Office of Thrift Supervision ("OTS") imposes various restrictions on
the ability of savings institutions to make capital distributions,
including dividend payments. A federal savings institution is prohibited
from making a capital distribution if, after making the distribution, the
savings institution would be undercapitalized. Further, a federal savings
institution cannot distribute regulatory capital that is needed for its
liquidation account.
(2) Nature of Business and Summary of Significant Accounting Policies
The following is a description of business of FloridaFirst Bancorp and
its subsidiary (the "Company") and the significant accounting and
reporting policies which the Company follows in preparing and presenting
its financial statements.
The Company conducts its business principally through the Bank. The Bank
is a community-oriented savings institution that delivers retail and
commercial banking services through nine full service locations.
Principal sources of income are derived through interest earned on loans
and investments. The primary sources of funds are customer deposits and
Federal Home Loan Bank advances. The Bank is subject to various
regulations governing savings institutions and is subject to periodic
examination by its primary regulator, the OTS.
48
(a) Principles of Consolidation
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and
include the accounts of the Bancorp and the Bank that, as
discussed in Note 1, became the wholly owned subsidiary of the
Bancorp on April 6, 1999. The Company's business is conducted
principally through the Bank. All intercompany transactions and
balances have been eliminated in consolidation.
(b) Cash and Cash Equivalents
For financial statement purposes, the Company considers cash, due
from banks and interest-bearing accounts with original maturities
of three months or less in other financial institutions to be cash
and cash equivalents.
(c) Investment Securities
Investments available for sale are stated at fair value.
Unrealized gains and losses on investments available for sale, net
of taxes, are included in accumulated other comprehensive income
or loss in the consolidated statements of financial condition
until these gains or losses are realized. Investments available
for sale that experience a decline in fair value that is other
than temporary are written down to fair value and the resultant
losses are reflected in the consolidated statements of earnings.
Gains and losses on the sale of investments available for sale are
recorded on the trade date and determined using the specific
identification method.
Investment securities held to maturity are investments that
management has the intent and the Company has the ability at the
time of purchase to hold until maturity. Securities in this
category are carried at amortized cost adjusted for accretion of
discounts and amortization of premiums using the level-yield
method over the estimated life of the securities. If a security
has a decline in fair value below its amortized cost that is other
than temporary, then the security will be written down to its new
cost basis by recording a loss in the consolidated statements of
earnings.
The Bank is required to maintain, in cash and U.S. Government and
other approved securities, an amount equal to 4% of deposits (net
of loans on deposits) plus short-term borrowings. The Bank's
liquidity ratio was 12.8% and 17.6% at September 30, 2000 and
1999, respectively.
Capital stock in the Federal Home Loan Bank of Atlanta ("FHLB") is
held in accordance with certain requirements of the FHLB. The
Company's investment is carried at cost and serves as collateral
for FHLB advances.
(d) Loans Held For Sale
Loans originated and held for sale by the Company are carried at
the lower of cost or market using the specific identification
method. Gains and losses on the sale of such loans are recognized
using the specific identification method. No loans were held for
sale at September 30, 2000 and 1999.
(e) Mortgage Loan Interest Income
The Company provides an allowance for uncollected interest
generally on all accrued interest related to loans 90 days or more
delinquent. This allowance is netted against accrued interest
receivable for financial statement disclosure. Such interest, if
ultimately collected, is credited to income in the period of
recovery.
49
(f) Loan Fees
Loan origination and commitment fees and certain related costs are
deferred and amortized over the contractual maturities, adjusted
for anticipated prepayments, as an adjustment to yield using the
level-yield method. For loans on non-accrual, such amortization
ceases.
(g) Loans and Provisions for Losses
Loans are stated at unpaid principal balances, less loans in
process, the allowance for loan losses, unearned interest, and net
deferred loan origination fees.
The Company follows a consistent procedural discipline and
accounts for loan loss contingencies in accordance with Statement
of Financial Accounting Standards (SFAS) No. 5, Accounting for
Contingencies, and accounts for impaired loans in conformity with
SFAS No. 114, Accounting by Creditors for Impairment of a Loan, as
amended by SFAS No. 118, Accounting by Creditors for Impairment of
a Loan - Income Recognition and Disclosure. The following is a
description of how each portion of the allowance for loan losses
is determined.
The Company segregates the loan portfolio for loan loss purposes
into the following broad segments: commercial real estate,
residential real estate, and consumer. The Company provides for an
allowance for losses inherent in the portfolio by the above
categories, which consists of two components: general loss
percentages and specific loss analysis.
General loss percentages are calculated based upon historical
analyses. A portion of the allowance is calculated for inherent
losses which management believes exist as of the evaluation date
even though they might not have been identified by the more
objective processes used. This is due to the risk of error and/or
inherent imprecision in the process. This portion of the allowance
is particularly subjective and requires judgments based on
qualitative factors which do not lend themselves to exact
mathematical calculations such as: trends in delinquencies and
nonaccruals; migration trends in the portfolio; trends in volume,
terms, and portfolio mix; new credit products and/or changes in
the geographic distribution of those products; changes in lending
policies and procedures; loan review reports on the efficacy of
the risk identification process; changes in the outlook for local,
regional and national economic conditions; concentrations of
credit; and peer group comparison.
Allowances are also provided in the event that the specific
collateral analysis on a loan indicates that the estimated loss
upon liquidation of collateral would be in excess of the general
percentage allocation. The provision for loan losses is debited or
credited in order to state the allowance for loan losses to the
required level as determined above.
The Company considers a loan to be impaired when it is probable
that the Company will be unable to collect all amounts due, both
principal and interest, according to the contractual terms of the
loan agreement. When a loan is impaired, the Company may measure
impairment based on (a) the present value of the expected future
cash flows of the impaired loan discounted at the loan's original
effective interest rate; (b) the observable market price of the
impaired loans; or (c) the fair value of the collateral of a
collateral-dependent loan. The Company selects the measurement
method on a loan-by-loan basis, except for collateral-dependent
loans for which foreclosure is probable must be measured at the
fair value of the collateral. In a troubled debt restructuring
involving a restructured loan, the Company measures impairment by
discounting the total expected future cash flows at the loan's
original effective rate of interest.
50
(h) Premises and Equipment
Depreciation of office properties and equipment is accumulated on
a straight-line basis over the estimated useful lives of the
related assets. Estimated lives are 10 to 50 years for buildings
and leasehold improvements, and 3 to 10 years for furniture,
fixtures and equipment.
Maintenance and repairs are charged to expense when incurred.
Expenditures for renewals and betterments generally are
capitalized. The costs and accumulated depreciation relating to
office properties and equipment retired or otherwise disposed of
are eliminated from the accounts, and any resulting gains and
losses are reflected in the consolidated statements of earnings.
(i) Real Estate Owned
Real estate owned represents real estate acquired through
foreclosure or deed in lieu of foreclosure. Real estate so
acquired is recorded at the lower of cost (principal balance of
the former mortgage loan) or estimated fair value, less estimated
selling expenses. The carrying value of real estate owned
properties was $113,000 and $16,000 at September 30, 2000 and 1999
and is included in Other Assets in the consolidated statements of
financial condition. The Company reported net (income) costs
related to real estate owned activities of ($6,000), $10,000 and
$144,000 in operations in fiscal years ended September 30, 2000,
1999 and 1998, respectively.
(j) Income Taxes
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that include the enactment
date.
(k) Financial Instruments With Off-Balance Sheet Risk
In the ordinary course of business, the Company is a party to
financial instruments with off-balance sheet risk. These financial
instruments include commitments to extend credit at both fixed and
variable rates and standby letters of credit. These instruments
involve, to varying degrees, elements of credit risk in excess of
the amount recognized, if any, in the consolidated statements of
financial condition. The Company's exposure to credit loss for
commitments to extend credit and standby letters of credit is
represented by the contractual amount of these instruments. The
Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet
instruments.
Commitments to extend credit are agreements to lend to a customer
as long as there is no violation of any condition established in
the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee.
The Company evaluates each customer's credit worthiness on a
case-by-case basis.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a third
party. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities
to customers.
51
(l) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements, and the
reported amount of revenues and expenses during the reporting
period. The major estimate by management that is critical to the
consolidated financial statements is the appropriate level of
allowance for loan losses which can be significantly impacted by
future industry, market and economic trends and conditions. Actual
results could differ from these estimates. Regulatory agencies, as
a part of their examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the
Company to recognize changes in the allowance based on their
judgements of information available to them at the time of their
examination.
(m) Self-Insurance
The Company is self-insured for employee medical and dental
benefits, but has a reinsurance contract to limit the amount of
liability for these benefits in any plan year. Benefits are
administered through a third party administrator and the related
liabilities are reflected in the consolidated financial
statements. The Company accrues a liability based on average
claims paid over the past three years, historical information and
certain assumptions regarding future events.
The self-insured plan operates on a calendar year basis. For the
plan years ended December 31, 1999, 1998 and 1997, claims paid,
net of amounts received under the reinsurance contract and
premiums received from dependent and COBRA coverage, were
$441,000, $460,000 and $356,000, respectively. The plan covers
only active employees as defined in the plan.
(n) Derivative Instruments
The Company does not purchase, sell or enter into derivative
financial instruments or derivative commodity instruments as
defined by SFAS No. 119, Disclosures About Derivative Financial
Instruments and Fair Value of Financial Instruments, other than
fixed rate loan commitments.
(o) Earnings Per Share
Basic net income per share of common stock for the periods
subsequent to the Reorganization has been computed by dividing net
income for the period by the weighted average number of shares
outstanding. Earnings per share information for all other periods
presented in these financial statements is not comparative and
therefore not presented.
Shares of common stock purchased by the Bank's Employee Stock
Ownership Plan ("ESOP") are only considered outstanding when the
shares are released or committed to be released for allocation to
participants. The Company determined that 1,803 shares per month
were committed to be released during the year ended September 30,
2000.
The common stock equivalents related to the Company's restricted
stock awards and stock options granted are used to compute diluted
earnings per share.
52
(p) Comprehensive Income
On October 1, 1998 the Company adopted SFAS No. 130, Reporting
Comprehensive Income which requires an entity to present, as a
component of comprehensive income, the amounts from transactions
and other events which currently are excluded from the
consolidated statements of earnings and are recorded directly to
stockholders' equity. The Company's other comprehensive income is
the unrealized gain (loss) on investments available for sale.
(q) Segment Information
On October 1, 1998 the Company adopted SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information, which
requires public companies to report information about segments of
their business and requires them to report selected segment
information in their quarterly reports issued to stockholders. No
specific segment disclosure is required since the Company views
its operations as a single segment.
(r) Accounting Pronouncements
In June 1998, the Financial Acounting Standards Board issued SFAS
No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to
as derivatives), and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those
instruments at fair value. FASB has delayed the effective date of
SFAS No. 133 until fiscal quarters of fiscal years beginning after
June 15, 2000 by issuing SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133. SFAS No. 133 is not expected to
have a material impact on the Company's financial statement
presentations.
(s) Reclassifications
Certain amounts in the 1999 and 1998 consolidated financial
statements have been reclassified to conform to the 2000
presentation.
53
(3) Investments Available for Sale
The amortized cost and estimated fair values of investments available for
sale are as follows:
September 30, 2000
--------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
-------------- ------------ ------------- --------------
(In thousands)
Obligations of U.S. government
agencies $ 19,861 - $ (504) $ 19,357
Collateralized mortgage
obligations 18,172 $ 76 (176) 18,072
Mortgage-backed securities 29,928 61 (339) 29,650
Corporate bonds 20,930 160 (904) 20,186
Municipal bonds 9,725 138 (467) 9,396
-------------- ------------ ------------- --------------
Total $ 98,616 $ 435 $ (2,390) $ 96,661
============== ============ ============= ==============
September 30, 1999
--------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses Value
-------------- ------------ ------------- --------------
(In thousands)
Obligations of U.S. government
agencies $ 20,855 - $ (342) $ 20,513
Collateralized mortgage
obligations 7,569 $ 3 (152) 7,420
Mortgage-backed securities 28,711 69 (464) 28,316
Corporate bonds 7,147 - (429) 6,718
Municipal bonds 5,831 - (646) 5,185
-------------- ------------ ------------- --------------
Total $ 70,113 $ 72 $ (2,033) $ 68,152
============== ============ ============= ==============
Approximately 70% and 95% of the collateralized mortgage obligations
("CMOs") and mortgage-backed securities ("MBS") as of September 30, 2000
and 1999, respectively, were issues of Ginnie Mae, Fannie Mae or Freddie
Mac.
The maturity distribution for the portfolio of investments available for
sale at September 30, 2000 is as follows:
Amortized Fair
cost Value
------------- ---------
(In thousands)
Due in one year or less $ 990 $ 990
Due after one year through five years 14,724 14,570
Due after five years through ten years 14,410 14,132
Due after ten years 38,564 37,319
------- -------
68,688 67,011
Mortgage-backed securities 29,928 29,650
------- -------
Total $98,616 $96,661
======= =======
54
Proceeds from sales of investments available for sale during the years
ended September 30, 2000, 1999 and 1998 were $5.7 million, $6.0 million
and $3.4 million, respectively. Gross gains of $5,000 were realized on
those sales during 2000. Gross gains of $8,000 and gross losses of
$30,000 were realized on those sales during 1999. Gross gains of $149,000
and gross losses of $32,000 were realized on those sales during 1998.
Investments available for sale with a fair value of $10.4 million and
$10.9 million were pledged as collateral to secure public funds at
September 30, 2000 and 1999, respectively.
(4) Investment Securities Held to Maturity
The amortized cost and estimated fair values of investment securities
held to maturity are as follows:
September 30, 2000
--------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses Value
-------------- ------------ ------------- --------------
(In thousands)
Obligations of U.S. government
agencies $ 1,000 - - $ 1,000
Collateralized mortgage
obligations 8,687 $ 33 $ (329) 8,391
-------------- ------------ ------------- --------------
Total $ 9,687 $ 33 $ (329) $ 9,391
============== ============ ============= ==============
September 30, 1999
--------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses Value
-------------- ------------ ------------- --------------
(In thousands)
Obligations of U.S. government
agencies $ 4,000 - $ (43) $ 3,957
Collateralized mortgage
obligations 8,724 $ 40 (242) 8,522
-------------- ------------ ------------- --------------
Total $ 12,724 $ 40 $ (285) $ 12,479
============== ============ ============= ==============
The CMOs have principal and interest components and have predominantly
variable rates of return. The weighted average rates at September 30,
2000, 1999 and 1998 were 6.59%, 5.57% and 5.80%, respectively. All CMOs
as of September 30, 2000 and 1999 were issues of Fannie Mae or Freddie
Mac.
The Company's investment in obligations of U.S. government agencies
include floating interest rate bonds that are reflected in the
consolidated financial statements at $1.0 million and $4.0 million at
September 30, 2000 and 1999, respectively. These bonds pay variable rates
of interest depending on relevant market rates and have an estimated fair
value of approximately $1.0 million and $3.9 million at September 30,
2000 and 1999, respectively. The floating interest rate bonds were
purchased to offset the risk related to the Company's portfolio of
adjustable and fixed rate mortgages; however, these bonds expose the
Company to a certain degree of market risk as their rates change with
prevailing market rates.
55
The amortized cost and estimated fair value of investment securities held
to maturity at September 30, 2000, by contractual maturity, are shown
below. Expected maturities may differ from contractual maturities because
borrowers have the right to call or prepay obligations without penalty.
Amortized Fair
Cost value
--------- ------------
(In thousands)
Due in one year or less $ 1,000 $ 1,000
Due after five years through ten years 5,692 5,473
Due after ten years 2,995 2,918
--------- --------------
Total $ 9,687 $ 9,391
========= ==============
(5) Loans Receivable, Net
Loans receivable consist of the following:
September 30,
------------------------------
2000 1999
------------ -------------
(Dollars in thousands)
Loans secured by first mortgages on real estate:
Residential 1-4:
Permanent $ 304,419 $ 276,115
Construction 27,996 32,974
Multi-family 3,610 5,787
Commercial real estate 28,176 19,783
Land 12,886 9,548
------------ -------------
Total first mortgage loans 377,087 344,207
------------ -------------
Other loans:
Consumer loans 81,039 75,044
Other loans 2,533 1,374
------------ -------------
Total other loans 83,572 76,418
------------ -------------
Total loans 460,659 420,625
Allowance for loan losses (3,321) (2,941)
Loans in process (16,952) (19,774)
------------ -------------
Loans receivable, net $ 440,386 $ 397,910
============ =============
Weighted average yield on loans at year end 7.83% 7.56%
============ =============
56
The activity in the allowance for loan losses was as follows
(in thousands):
Balance at September 30, 1997 $ 2,633
Provision for loan losses 405
Charge offs (474)
Recoveries -
--------
Balance at September 30, 1998 2,564
Provision for loan losses 540
Charge offs (251)
Recoveries 88
--------
Balance at September 30, 1999 2,941
Provision for loan losses 630
Charge offs (288)
Recoveries 38
--------
Balance at September 30, 2000 $ 3,321
========
Outstanding mortgage loan commitments, generally with terms of 30 days,
were approximately $672,000 and $2.0 million for fixed rate loans, and
$214,000 and $300,000 for variable rate loans at September 30, 2000 and
1999, respectively. There was a $2,000 letter of credit outstanding at
September 30, 2000 and none at September 30, 1999. Furthermore, the
Company was servicing approximately $14.1 million, $16.7 million and
$23.3 million in loans for the benefit of others in 2000, 1999 and 1998,
respectively. The Company holds custodial escrow deposits for these
serviced loans totaling approximately $149,000 and $10,000 at September
30, 2000 and 1999, respectively. The range of interest rates on the fixed
rate loan commitments as of September 30, 2000 was 7.88% to 8.50%.
Loan customers of the Company include certain executive officers and
directors and their related interests and associates. All loans to this
group were made in the ordinary course of business at prevailing terms
and conditions. As of September 30, 2000, these loans amounted to
approximately $169,000.
Impaired loans have been recognized in conformity with SFAS No. 114, as
amended by SFAS No. 118. Impaired loans and related information are as
follows:
September 30,
----------------------
2000 1999 1998
---- ---- ----
Impaired loans at year end $ 762 $ 830 $ 836
Average balance of impaired loans for the year 454 957 1,697
Allowance for loan losses for impaired loans 189 166 167
Interest income recognized during the year 43 72 130
57
(6) Premises and Equipment
Premises and equipment consists of the following:
September 30,
------------------
2000 1999
------- -------
(In thousands)
Land $ 2,992 $ 1,819
Buildings and leasehold improvements 6,571 6,646
Furniture, fixtures and equipment 4,562 3,691
Other projects in progress 905 -
------- -------
Total 15,030 12,156
Less accumulated depreciation and amortization (6,095) (5,338)
------- -------
Premises and equipment, net $ 8,935 $ 6,818
======= =======
The Company conducts a portion of its operations from leased facilities
and leases certain equipment under operating leases. As of September 30,
2000, the Company was committed to noncancelable operating leases with
annual minimum lease payments approximating $167,000 through September
30, 2003 and approximately $99,000 per year thereafter through fiscal
year 2010.
Rent expense under all operating leases was approximately $106,000,
$136,000 and $139,000 for the years ended September 30, 2000, 1999 and
1998, respectively.
(7) Deposits
Deposits and weighted average interest rates are as follows:
September 30, 2000 September 30, 1999
---------------------------- -------------------------------
Amount Rate Amount Rate
--------------- ----------- -------------- -----------
(In thousands) (In thousands)
Noninterest-bearing checking $ 16,292 - $ 13,485 -
Interest-bearing checking 31,460 1.86% 27,098 1.77%
Savings accounts 29,167 2.08% 32,826 1.67%
Money market accounts 24,325 5.10% 23,997 3.87%
Certificate accounts:
4.00% - 4.99% 19,999 112,560
5.00% - 5.99% 81,625 79,323
6.00% - 6.99% 144,575 47,903
7.00% - 7.99% 7,111 2,032
--------- ---------
Total certificates 253,310 5.89% 241,818 5.12%
--------- ---------
Total deposits $ 354,554 4.90% $ 339,224 4.23%
========= =========
Certificate accounts in amounts of $100,000 or more totaled approximately
$57.3 million and $55.8 million at September 30, 2000 and 1999,
respectively. Deposits in excess of $100,000 are not federally insured.
The Company had certificate accounts totaling $17.1 and $17.2 million
under the State of Florida public deposits program at September 30, 2000
and September 30, 1999, respectively. Deposits under this program are
collateralized with investment securities in accordance with applicable
regulations.
58
Interest expense on deposits is summarized as follows:
Year ended September 30,
----------------------------------------
2000 1999 1998
--------- -------- --------
(In thousands)
Interest on interest-bearing
checking and money market accounts $ 1,648 $ 1,257 $ 1,051
Interest on savings and certificate accounts 14,173 13,550 17,868
Less early withdrawal penalties (77) (80) (88)
--------- -------- --------
Total interest expense $15,744 $14,727 $18,831
========= ======== =======
Certificate accounts by year of scheduled maturity are as follows:
September 30,
-------------------------------
Fiscal Year 2000 1999
----------- ------------- -----------
(In thousands)
2000 - $ 163,002
2001 $ 164,802 38,335
2002 62,280 29,572
2003 11,477 8,241
2004 and after 14,751 2,668
--------- ---------
Total $ 253,310 $ 241,818
========= =========
(8) Advances From Federal Home Loan Bank and Other Borrowings
The Company had $158.0 million and $87.6 million in FHLB advances with
weighted average interest rates of 6.27% and 5.18% at September 30, 2000
and 1999, respectively. The advances as of September 30, 2000 include
$71.0 million in convertible advances whereby the FHLB has the option at
a predetermined time to convert the fixed interest rate to an adjustable
rate tied to LIBOR (London interbank offering rate). The Company then has
the option to prepay the advances without penalty if the FHLB converts
the interest rate. Should the Company elect to otherwise prepay these
borrowings prior to maturity, prepayment penalties may be incurred.
Advances from the FHLB are secured with a blanket floating lien which
includes a security interest in the FHLB stock held by the Company and
the Company's mortgage loan portfolio.
The Company's borrowings from the FHLB at September 30, 2000 are as
follows:
Conversion
Year option Rate Maturity Rate
---- ------ ---- -------- ----
(In thousands) (In thousands)
2001 $ 61,000 5.74% $ 72,000 6.75%
2003 5,000 5.02 10,000 5.39
2004 5,000 6.10 10,000 5.18
2005 - 10,000 6.49
2008 - 15,000 5.07
2009 - 20,000 6.53
2010 - 21,000 6.11
-------- --------
Total and weighted average rate $ 71,000 5.71% $158,000 6.27%
======== ========
59
The Company's borrowings from the FHLB at September 30, 1999 were as
follows:
Conversion
Year option Rate Maturity Rate
---- ------ ---- -------- ----
(In thousands) (In thousands)
2000 $25,000 4.91% $32,600 5.55%
2001 25,000 4.98 -
2003 5,000 5.02 -
2004 - 15,000 4.91
2008 - 20,000 5.08
2009 - 20,000 4.86
------- -------
Total and weighted average rate $55,000 4.95% $87,600 5.18%
======= =======
As of September 30, 2000 the Company's $2.9 million in other borrowings
are short-term borrowings bearing interest at 6.67% per annum. These
borrowings mature on January 22, 2001 and are collateralized by
securities of U. S. government agencies having a fair value of $3.0
million.
60
(9) Income Taxes
Income taxes for 2000, 1999 and 1998 consists of the following:
Current Deferred Total
-------- --------- --------
(In thousands)
Year ended September 30, 2000:
Federal $1,943 $ (160) $ 1,783
State 338 (27) 311
-------- --------- --------
$2,281 $ (187) $ 2,094
======== ========= ========
Year ended September 30, 1999
Federal $ 1,606 $ (33) $ 1,573
State 181 (6) 175
-------- --------- --------
$ 1,787 $ (39) $ 1,748
======== ========= ========
Year ended September 30, 1998:
Federal $ 1,825 $ (782) $ 1,043
State 190 (82) 108
-------- --------- --------
$ 2,015 $ (864) $ 1,151
======== ========= ========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are as
follows:
September 30,
-------------------------
2000 1999
-------- ---------
(In thousands)
Deferred tax assets:
Loans receivable, due to allowance for loan losses, net $ 1,252 $ 992
Pension asset 202 202
Unrealized loss on investments available for sale 735 725
Self-insurance reserve 299 322
Other 46 85
--------- ---------
Total deferred tax assets 2,534 2,326
Less valuation allowance - -
--------- ---------
Net deferred tax assets 2,534 2,326
--------- ---------
Deferred tax liabilities:
FHLB stock (432) (433)
Other (76) (64)
--------- ---------
Total deferred tax liabilities (508) (497)
--------- ---------
Net deferred tax assets $ 2,026 $ 1,829
========= =========
Net deferred tax assets are included in other assets in the consolidated
statements of financial condition.
61
The Company's effective rate on pretax income differs from the statutory
Federal income tax rate as follows (dollars in thousand):
Year ended September 30,
------------------------------------------------------------------
2000 % 1999 % 1998 %
------- ----- ------- ------ ------ -----
Tax provision at statutory rate $2,018 34% $1,702 34% $1,202 34%
Increase (decrease) in tax
Resulting from:
Tax-exempt interest, net of scaleback (148) (2)% (70) (1)% (17) (1%)
State income taxes, net of Federal
income tax benefit 205 3% 116 2% 65 2%
Other, net 19 - - - (99) (2%)
------- ----- ------- ------ ------- -----
Total $2,094 35% $1,748 35% $1,151 33%
======= ===== ======= ====== ======= =====
Until 1997, the Internal Revenue Code (the "Code") allowed the Company a
special bad debt deduction for additions to bad debt reserves for tax
purposes. Provisions in the Code permitted the Company to determine its
bad debt deduction by either the experience method or the percentage of
taxable income method. The statutory percentage used to calculate bad
debt deductions by the percentage of taxable income method was 8% before
such deduction. The experience method was calculated using actual loss
experience of the Company.
The Small Business Job Protection Act of 1996 repealed the percentage of
taxable income method of accounting for bad debts for tax years beginning
after 1995. The Company switched to the experience method above to
compute its bad debt deduction in 1997 and future years. As a result of
the change in the Code, the Company is required to recapture into taxable
income the portion of its bad debt reserves that exceeds its bad debt
reserves calculated under the experience method since 1987; a recapture
of approximately $366,000 ratably over six years beginning in 1999.
Retained earnings at September 30, 2000 includes approximately $5.8
million base year, tax basis bad debt reserve for which no deferred
Federal and state income tax liability has been accrued. These amounts
represent an allocation of income to bad debt deductions for tax purposes
only. Reduction of amounts so allocated for purposes other than tax bad
debt losses or adjustments arising from carryback of net operating losses
would create income for tax purposes only, which would be subject to the
then current corporate income tax rate. The unrecorded deferred income
tax liability on the above amounts was approximately $2.0 million at
September 30, 2000. Certain events, as defined, will still trigger the
recapture of the base year reserve. The base year reserves also remain
subject to income tax penalty provisions which, in general, require
recapture upon certain stock redemptions or excess distributions to
stockholders.
(10) Concentration of Credit Risk
The Company originates real estate, consumer, and commercial loans
primarily in its Central Florida market area. Although the Company has a
diversified loan portfolio, a substantial portion of its borrowers'
ability to honor their contracts depends on the economic conditions of
Central Florida. The Company does not have a significant exposure to any
individual customer or counterparty.
The Company manages its credit risk by limiting the total amount of
arrangements outstanding with individual customers, by monitoring the
size and maturity structure of the loan portfolio, by obtaining
collateral based on management's credit assessment of the customers, and
by applying a uniform credit process for all credit exposures.
62
(11) Regulatory Matters
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of risk-based and Tier I capital (as defined in
the regulations) to risk-weighted assets (as defined).
As of June 1999, the most recent notification from the OTS categorized
the Bank as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as "well capitalized," the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events since
that notification that management believes have changed the Bank's
category.
The Bank's actual capital amounts and ratios are as follows:
September 30, 2000
-------------------------------------------------------------------
"Well capitalized"
For capital under prompt
adequacy Corrective action
Actual purpose provisions
------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Risk-based capital
(to risk-weighted $ 56,470 15.5% $ 29,158 8.0% $ 36,448 10.0%
assets)
Tier I capital (to risk-
weighted assets) $ 53,149 14.6% $ 14,579 4.0% $ 21,869 6.0%
Tier I capital
(to average assets) $ 53,149 9.7% $ 21,844 4.0% $ 27,305 5.0%
September 30, 1999
-------------------------------------------------------------------
"Well capitalized"
For capital under prompt
adequacy Corrective action
Actual purpose Provisions
------------------- --------------------- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Risk-based capital
(to risk-weighted $ 52,713 17.2% $ 24,471 8.0% $ 30,589 10.0%
assets)
Tier I capital (to risk-
weighted assets) $ 49,772 16.3% $ 12,237 4.0% $ 18,353 6.0%
Tier I capital
(to average assets) $ 49,772 11.1% $ 18,000 4.0% $ 22,500 5.0%
63
Capital at September 30, 2000 for consolidated financial statement
purposes differs from the Tier I capital amount by $(1.2) million
representing the exclusion of unrealized losses on investments available
for sale and $9.2 million of capital maintained by the Bancorp. Total
risk-based capital differs from Tier I capital by the allowance for loan
losses.
Capital at September 30, 1999 for consolidated financial statement
purposes differs from the Tier I capital amount by $(1.2) million
representing the exclusion of unrealized losses on investments available
for sale and $12.8 million of capital maintained by the Bancorp. Total
risk-based capital differs from Tier I capital by the allowance for loan
losses.
The payment of dividends by the Bank to the Company are restricted. OTS
regulations impose limitations on all capital distributions by savings
institutions. Capital distributions include cash dividends, payments to
repurchase or otherwise acquire the institution's capital stock, payments
to stockholders of another institution in a cash-out merger and other
distributions charged against capital. A savings institution that is a
subsidiary of a savings and loan holding company, such as the Bank, must
file an application or a notice with the OTS at least 30 days before
making a capital distribution. Savings institutions are not required to
file an application for permission to make a capital distribution and
need only file a notice if the following conditions are met: (1) they are
eligible for expedited treatment under OTS regulations, (2) they would
remain adequately capitalized after the distribution, (3) the annual
amount of capital distribution does not exceed net income for that year
to date added to retained net income for the two preceding years, and (4)
the capital distribution would not violate any agreements between the OTS
and the savings institution or any OTS regulations. Any other situation
would require an application to the OTS.
(12) Sale of Branches
On October 29, 1997, the Company entered into an agreement to sell
substantially all of the loans, with a majority of the loans sold on a
servicing-released basis, and certain liabilities (primarily deposit
liabilities) of the branches located in north Florida. The sale included
loans at 80% of the deposit liability. The remaining 20% of the sale was
funded with cash. The transaction was completed January 30, 1998. Assets
of approximately $52.5 million, including loans of $44.6 million,
property and equipment of $705,000, cash of $10.1 million, and
liabilities consisting primarily of deposit accounts of $55.5 million,
were sold for a gain of approximately $3.0 million. The assets sold
included the branches, except for two branches that were closed by the
Company because the Company is precluded from conducting any further
business at those locations. The two branches were subsequently sold to
third parties during the year ended September 30, 1999.
(13) Benefit Plans
Director Retirement Plan. On September 28, 1998, the Board of Directors
approved a non-qualified Director Retirement Plan ("Retirement Plan").
The Retirement Plan will pay all Directors that have served on the board
at least ten years, an amount equal to the regular board fee as of the
date of the directors retirement (currently $1,000 per month) for 120
months beginning at the end of their final three-year term. If a Director
dies prior to retirement or prior to receipt of all monthly payments
under the plan, the Company has no further financial obligations to the
Director or his or her estate. For the year ended September 30, 2000 the
Company recognized a net reduction in expense of $34,000 related to
adjusting the remaining liability after the death of a director. For the
years ended September 30, 1999 and 1998, the Company recognized costs of
$37,000 and $410,000 related to this Retirement Plan. The amounts were
determined by discounting the anticipated cash flow required, based on
the years of service rendered by each covered director. The
weighted-average discount rate used to measure the expense was 5.50%. The
1998 expense is a component of other compensation and employee benefits
expense in the consolidated statements of earnings.
64
Pension Plan. The Company had a noncontributory defined benefit pension
plan ("Plan") that covered substantially all employees who met minimum
service requirements. The benefit formula of the Plan generally based
payments to retired employees upon their length of service and a
percentage of qualifying compensation during the final years of
employment.
On September 28, 1998, the Board of Directors froze benefit accruals
for the Plan effective November 3, 1998 and directed the Company to
allocate to each eligible participant the full present value of
accrued benefits based on the Plan liquidation guidelines, as
prescribed by the Internal Revenue Code. The present value of benefit
obligations at September 30, 1998 was approximately $5.7 million and
the plan assets at fair value were approximately $4.0 million. As a
result, the Company recognized other compensation and employee
benefits expense of $1.7 million for 1998 as an actuarial estimate of
benefits payable upon liquidation, and the related liability is a
component of other liabilities on the statement of financial
condition.
The Company terminated the Plan on April 14, 1999 by distributing the
participants their full present value of accrued benefits based on the
Plan liquidation guidelines, as prescribed by the Internal Revenue Code.
The Company funded $1.3 million to the Plan, which when combined with
other Plan assets, provided sufficient assets to distribute to or
purchase annuities for Plan participants to satisfy the present value of
the calculated benefit obligations.
Pension cost for the year ended September 30, 1998 consisted of the
following (in thousands):
Service cost - benefits earned during the period $ 207
Interest cost 304
Actual return on assets held in plan (580)
Net amortization and deferral 335
-----
Net periodic pension cost $ 266
=====
The weighted-average discount rate used to measure projected benefit
obligations was approximately 6.0% at September 30, 1998 and the expected
long-term rate of return on assets was approximately 6.5% for September
30, 1998.
Employee Stock Ownership Plan. The Company sponsors an employee stock
ownership plan ("ESOP"). The ESOP covers eligible employees who have
completed twelve months of continuous employment with the Company during
which they worked at least 1,000 hours and who have attained the age of
21. As part of the Reorganization in April 1999, the ESOP borrowed $2.2
million from the Company to purchase 216,308 shares of the common stock
of the Company. Since the ESOP is internally leveraged, the Company does
not report the loan receivable from the ESOP as an asset and does not
report the loan payable from the ESOP as a liability. The Company's
accounting for its ESOP is in accordance with AICPA Statement of Position
93-6, Employers Accounting for Employee Stock Ownership Plans, which
requires the Company to recognize compensation expense equal to the fair
value of the ESOP shares during the periods in which they became
committed to be released. As shares are committed to be released, the
shares become outstanding for earnings per share computations. To the
extent that the fair value of the ESOP shares differs from the cost of
such shares, this differential will be charged or credited to equity as
additional paid-in capital. Management expects the recorded amount of
expense to fluctuate as continuing adjustments are made to reflect
changes in the fair value of the ESOP shares. As of September 30, 2000
and 1999, 32,400 and 32,500 shares had been committed for release and the
Company recorded compensation and employee benefit expense of $284,000
and $286,000 for the years ended September 30, 2000 and 1999,
respectively, relating to the ESOP.
65
Dividends paid by the Company that relate to unallocated shares of the
ESOP are used to make payments on the ESOP loan. As of September 30,
2000, the fair value of the 183,080 unallocated shares held by the ESOP
was $2.2 million.
401(K) Retirement Plan. Effective January 1, 1999, the Company adopted a
qualified defined contribution plan with 401(k) provisions for eligible
employees. Subject to certain restrictions, eligible employees may
voluntarily contribute up to 15% of their annual compensation and the
Company may authorize discretionary contributions to eligible
participants. During fiscal years 2000 and 1999 the Company approved a
maximum Company match of 50% on eligible contributions for the first 6%
of participant compensation. For the years ended September 30, 2000 and
1999 the Company recognized $94,000 and $65,000, respectively, of
employee benefits expense for the Company's matching contribution under
the plan.
Supplemental Executive Retirement Plan ("SERP"). Effective January 1,
1999, the Company adopted a nonqualified defined contribution plan to
provide supplemental retirement benefits for certain executive officers.
The SERP will provide benefits at age 65 that would be comparable to
approximately 83% of the benefits that would have accrued under the
terminated pension plan after age 65. If a participant terminates
employment prior to age 65, then the target retirement benefits will be
reduced. For the years ended September 30, 2000 and 1999 the Company
recognized $130,000 and $94,000, respectively, of employee benefits
expense related to the SERP.
(14) Stock-Based Compensation Plans
The Company follows the provisions of SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 123 applies to stock-based
compensation under the Company's incentive Stock Option Plan ("Option
Plan") and under the Company's Restricted Stock Plan ("RSP") discussed
below. As allowed by SFAS No. 123, the Company elected to continue to
measure compensation cost for the options or shares granted under either
plan using the intrinsic value method of accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees. SFAS No. 123 does not apply to the ESOP discussed in Note
13.
Restricted Stock Plan. On October 19, 1999 the Company adopted, and the
stockholders approved, a RSP for directors and officers to enable the
Bank to attract and retain experienced and qualified personnel. Under the
RSP, directors and officers of the Company were awarded 108,154 shares of
the Company's stock. Restricted shares are earned at a rate of 20% each
year of continued service to the Company. In the event of death or
disability of a participant, all shares awarded to that participant
become immediately vested. The fair value of the shares awarded was
$919,000, using the market closing price of $8.50 on the date of grant.
This amount is being amortized over a five-year period to compensation
and employee benefits expense, commencing October 1, 1999. All shares
awarded under the RSP are considered as shares outstanding for purposes
of calculating earnings per share.
The shares earned under this plan are entitled to all voting and other
stockholder rights, except that, while restricted, the shares must be
held in escrow and cannot be sold, pledged or otherwise conveyed. The
Company plans to acquire the necessary shares through open market
purchases. During the year, the RSP purchased 57,879 shares at an average
price of $7.76 per share. Upon the death of a participant during the year
ended September 30, 2000, 4,635 shares were distributed from the RSP. At
September 30, 2000 the plan held 53,244 shares at an average price of
$7.76 per share.
66
Stock Option Plan. The Company has a Stock Option Plan under which
270,385 common shares are authorized to be granted to directors, officers
and employees of the Bank. Shares granted under the Option Plan are
exercisable at the market price at the date of the grant. The stock
options granted to directors, officers and employees upon approval of the
plan by stockholders on October 19, 1999 vest 20% per year, with the
first installment becoming exercisable one year after the date of grant.
Incentive options expire at the earlier of ten years from the date of
grant or three months following the date an officer or employee
terminates the employment relationship for reasons other than disability
(options expire in one year after disability) or death (options expire in
two year after death). Non-incentive options expire ten years from the
date of grant. All options are immediately vested in the event of death
or disability.
During the year ended September 30, 2000, options were granted under the
Option Plan providing the participants with the right to acquire 270,385
shares of Company stock. SFAS No. 123 requires pro forma fair value
disclosures if the intrinsic value method is being utilized. In order to
calculate the fair value of the options, it was assumed that the
risk-free interest rate was 7.0% for each period, an annualized dividend
of approximately 1.5% would apply over the exercise period and the
expected life of the options would be the entire exercise period. No
volatility assumption was utilized. For purposes of pro forma
disclosures, the estimated fair value was included in expense in the
period vesting occurs, using September 30, 2000 as the first vesting
period. The pro forma information has been determined as if the Company
had accounted for its stock options under the fair value method of SFAS
No. 123 and is as follows (in thousands, except per share amounts):
Weighted average grant-date fair value of options issued during the year $16.07
Pro forma net income $3,399
Pro forma basic earnings per share $ .65
Substantially all stock options were granted on October 19, 1999 at the
fair market value of $8.50. The following is a summary of option
transactions:
Range of Per Share Weighted Average
Number of Shares Option Price Per Share Price
---------------- ------------ ---------------
Granted during the year 270,385 $8.13-$8.50 $8.49
Forfeited during the year (2,000) 8.50 8.50
-------
Outstanding, September 30, 2000 268,385 8.49 8.49
=======
The weighted average remaining contractual life of the outstanding
options at September 30, 2000 was 9.1 years. The outstanding options at
September 30, 2000 were exercisable as follows:
Number of Weighted Average Weighted Average Remaining
Year Ending Shares Exercise Price Contractual Life
----------- ------ -------------- ----------------
2001 61,417 $8.49 9.0
2002 51,742 8.49 8.0
2003 51,742 8.49 7.0
2004 51,742 8.49 6.0
2005 51,742 8.49 5.0
------
Total 268,385 8.49
=======
67
(15) Conversion from Mutual Holding Company to Full Stock Company (Unaudited)
On July 21, 2000, the Board of Directors of the Company, the MHC and the
Bank adopted plans of merger and conversion ("Conversion") to convert
from a federally chartered mutual holding company to a state chartered
capital stock holding company known as FloridaFirst Bancorp, Inc. The
Conversion will be accounted for as a change in corporate form with no
resulting change in the historical basis of the Company's assets,
liabilities and equity. The Conversion was successfully completed on
December 21, 2000. As a result of the successful conversion,
approximately $30.5 million will be added to stockholders' equity in
December 2000.
At the time of the Conversion, the Bank established a liquidation account
in an amount equal to its equity as reflected in the statement of
financial condition used in the final Conversion prospectus. The
liquidation account will be maintained for the benefit of eligible
account holders and supplemental eligible account holders who continue to
maintain their accounts at the Bank after the Conversion. The liquidation
account will be reduced annually, to the extent that eligible and
supplemental eligible account holders have reduced their qualifying
deposits as of each anniversary date. Subsequent increases in balances
will not restore an eligible or supplemental eligible account holder's
interest in the liquidation account. In the event of a complete
liquidation of the Bank, each eligible and supplemental eligible account
holder will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying
balances for accounts then held.
Subsequent to the Conversion, the Bank may not declare or pay cash
dividends on its shares of common stock if the effect thereof would cause
equity to be reduced below applicable regulatory capital maintenance
requirements or if such declaration and payment would otherwise violate
regulatory requirements.
(16) Fair Values of Financial Instruments
Fair value estimates, methods and assumptions are set forth below for the
Company's financial instruments at September 30, 2000 and 1999.
Cash and cash equivalents: The carrying amount of cash and cash
equivalents (demand deposits maintained at various financial
institutions) represents fair value.
Investments: The Company's investment securities represent investments in
U.S. government agency obligations, CMOs, MBS, corporate bonds and
municipal bonds. The fair value of these investments was estimated based
on quoted market prices or bid quotations received from securities
dealers.
FHLB stock: The FHLB stock is not publicly traded and the carrying amount
was used to estimate the fair value.
Loans: Fair values are estimated for the Company's portfolio of loans by
grouping loans with similar financial characteristics. The loans have
been segregated by type, such as fixed and variable rate first mortgage
loans and other loans. The fair value of loans is estimated by
discounting the future cash flows using current rates at which similar
loans would be made to borrowers with similar credit ratings and for
similar maturities.
68
Deposit liabilities: The fair value of deposits with no stated maturity
(i.e., interest and noninterest-bearing checking accounts and savings
accounts) is equal to the amount payable as of year end. The fair value
of certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate is estimated using the rates
currently offered by the Company for deposits of similar remaining
maturities.
FHLB advances and other borrowings: The fair value of FHLB advances and
other borrowings are based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently offered
by creditors for advances of similar remaining maturities.
Commitments: The Company makes commitments in the normal course of
business to originate loans. All such commitments are for relatively
short periods of time, so the market value of the loans on the commitment
date and origination or delivery date are seldom materially different.
The estimated fair values of the Company's financial instruments are as
follows:
September 30, 2000
------------------------
Carrying Estimated
amount Fair value
--------- ------------
(In thousands)
Financial assets:
Cash and cash equivalents $ 6,734 $ 6,734
Investments available for sale 96,661 96,661
Investment securities held to maturity 9,687 9,391
Federal Home Loan Bank stock 7,925 7,925
Loans (carrying amount net of
allowance for loan losses of $3,321) 440,386 433,631
========= ========
Financial liabilities:
Deposits:
Without stated maturities $101,244 $101,244
With stated maturities 253,310 251,196
Federal Home Loan Bank advances 158,000 157,537
Other borrowings 2,937 2,937
========= ========
Commitments:
Loan commitments - $ 886
========= ========
69
September 30, 1999
------------------------
Carrying Estimated
Amount Fair value
---------- ----------
(In thousands)
Financial assets:
Cash and cash equivalents $ 2,598 $ 2,598
Investments available for sale 68,152 68,152
Investment securities held to maturity 12,724 12,479
Federal Home Loan Bank stock 4,475 4,475
Loans (carrying amount net of
allowance for loan losses of $2,941) 397,910 399,914
======== ========
Financial liabilities:
Deposits:
Without stated maturities $ 97,406 $ 97,406
With stated maturities 241,818 241,475
Federal Home Loan Bank advances 87,600 86,873
Other borrowings 4,872 4,872
======== ========
Commitments:
Loan commitments - $ 2,300
======== ========
(17) Commitments and Contingencies
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements. In addition, the Company is a
defendant in certain claims and legal actions arising in the ordinary
course of business. In the opinion of management, after consultation with
legal counsel, the ultimate disposition of these matters is not expected
to have a material adverse effect on the financial condition or results
of operations of the Company.
70
(18) Parent Company Only Financial Statements
Condensed financial statements of FloridaFirst Bancorp are as follows (in
thousands):
Condensed Statements of Financial Condition
September 30,
---------------------------
Assets 2000 1999
---- ----
Cash and cash equivalents $ 50 $ 50
Loan receivable from subsidiary 4,948 10,756
Investments available for sale 2,263
Investment in subsidiary 51,918 48,535
ESOP loan receivable 1,838 2,163
Other assets 64
--------- --------
Total assets $ 61,081 $ 61,504
========= ========
Liabilities and Stockholders' Equity
Dividends payable $ 107
Accrued income taxes 60
--------
Total liabilities 167
--------
Stockholders' equity 61,081 61,337
--------- --------
Total liabilities and stockholders' equity $ 61,081 $ 61,504
========= ========
Year ended September 30,
-------------------------
Condensed Statements of Earnings 2000 1999
-------------------------------- ---- ----
Interest income:
Interest on Securities $ 135
Loan to ESOP 152 $ 57
Loan to subsidiary 348 169
--------- --------
Total income 635 226
--------- --------
Operating expenses 102 57
--------- --------
Income before income taxes and equity
in undistributed earnings of subsidiary 533 169
Income taxes 191 60
--------- --------
Income before equity in undistributed earnings of subsidiary 342 109
Equity in undistributed earnings of subsidiary 3,500 3,148
--------- --------
Net income $ 3,842 $ 3,257
========= ========
71
Year ended September 30,
Condensed Statements of Cash Flows 2000 1999
---------------------------------- ------- ------
Cash flows from operating activities:
Net income $ 3,842 $ 3,257
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiary (3,500) (3,148)
Increase (decrease) in other - net (126) 60
------- --------
Net cash provided by operating activities 216 169
------- --------
Cash flows from investing activities:
Capital contribution to subsidiary - (12,900)
Purchase of investment securities (2,263)
Repayment (issuance) of ESOP loan receivable 325 (2,163)
Repayment (issuance) of loan receivable from subsidiary 5,808 (10,756)
------- --------
Net cash provided by (used in) investing activities 3,870 (25,819)
------- --------
Cash flows from financing activities:
Payments to acquire treasury stock (3,606) -
Dividends paid ( 480) -
Net proceeds from stock offering - 25,700
------- --------
Net cash provided by (used in) financing activities (4,086) 25,700
------- --------
Increase in cash - 50
Cash at beginning of year 50 -
------- --------
Cash at end of year $ 50 $ 50
======= ========
Supplemental disclosure of non-cash information:
Transfer of investment in subsidiary upon creation of holding company $ 36,107
========
Declaration of dividends payable $ 107
========
The Company's ability to pay dividends to stockholders is dependent upon the
dividends the Company receives from the Bank. The Bank may not declare or pay a
cash dividend on any of its stock if the effect of the declaration or payment of
dividends would cause the Bank's regulatory capital to be reduced below (1) the
amount required for the liquidation account established in connection with the
Conversion, or (2) the regulatory capital requirements imposed by the OTS.
72
(19) Quarterly Financial Data (Unaudited)
Unaudited quarterly financial data (in thousands except share data) is as
follows:
Year ended September 30, 2000 Year ended September 30, 1999
------------------------------------- --------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
Interest income ........... $ 9,151 $ 9,741 $10,271 $10,677 $ 7,834 $ 7,955 $ 8,213 $ 8,646
Interest expense .......... 5,034 5,574 6,212 6,755 4,283 4,216 4,099 4,530
------- ------- ------- ------- ------- ------- ------- -------
Net interest income ....... 4,117 4,167 4,059 3,922 3,551 3,739 4,114 4,116
Provision for loan losses . 120 150 180 180 150 150 120 120
------- ------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses 3,997 4,017 3,879 3,742 3,401 3,589 3,994 3,996
------- ------- ------- ------- ------- ------- ------- -------
Non-interest income ....... 446 504 523 641 321 464 351 337
Non-interest expense ...... 3,039 3,052 2,904 2,818 2,700 2,871 2,939 2,938
------- ------- ------- ------- ------- ------- ------- -------
Income before taxes ....... 1,404 1,469 1,498 1,565 1,022 1,182 1,406 1,395
Provision for income taxes 494 517 530 553 379 434 466 469
------- ------- ------- ------- ------- ------- ------- -------
Net income ................ $ 910 $ 952 $ 968 $ 1,012 $ 643 $ 748 $ 940 $ 926
======= ======= ======= ======= ======= ======= ======= =======
Basic earnings per share .. $ .17 $ .18 $ .19 $ .19 $ .17 $ .17
======= ======= ======= ======= ======= =======
Diluted earnings per share $ .16 $ .18 $ .19 $ .19 $ .17 $ .17
======= ======= ======= ======= ======= =======
73
INDEPENDENT AUDITORS' REPORT
The Board of Directors
FloridaFirst Bancorp:
We have audited the accompanying consolidated statements of financial condition
of FloridaFirst Bancorp and subsidiary (the Company), as of September 30, 2000
and 1999, and the related consolidated statements of earnings, stockholders'
equity and comprehensive income, and cash flows for each of the years in the
three-year period ended September 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FloridaFirst Bancorp
and subsidiary at September 30, 2000 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 2000 in conformity with accounting principles generally
accepted in the United States of America.
/s/KPMG LLP
Tampa, Florida
November 3, 2000, except for
Note 15 which is as of December 21,2000.
74
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
- --------------------------------------------------------------------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Section 16(a) Beneficial ownership Reporting Compliance
The Common Stock of the Company is registered pursuant to Section 12(g) of the
Securities and Exchange Act of 1934. The executive officers and directors of the
Company and beneficial owners of greater than 10% of the Common Stock ("10%
beneficial owners") are required to file reports on Forms 3, 4 and 5 with the
Securities and Exchange Commission disclosing changes in beneficial ownership of
the Common Stock. Based solely on the Company's review of Forms 3, 4 and 5 filed
by officers, directors and 10% beneficial owners of Common Stock, no executive
officer, director or 10% beneficial owner of Common Stock failed to file such
ownership reports on a timely basis during the fiscal year ended September 30,
2000.
Directors and Executive Officers
Board of Directors
Nis H. Nissen, III, 59, became Chairman of the Board in January 2000, after
serving as a Director of FloridaFirst Bank since 1996. Mr. Nissen is President
and Chief Executive Officer of Nissen Advertising, Inc., an advertising and
public relations firm located in Lakeland, Florida that he has been affiliated
with since 1971. He also is a member of the Rotary Club, a Director of the
Central Florida Speech & Hearing Center, a Director of Crimestoppers of Polk
County, Vice Chairman of the Public Information Committee, Community Foundation
of Lakeland, a member of the Fine Arts Council of the Florida Southern
Foundation of Lakeland, and a member of the Board of Governors of Florida
Southern College.
Gregory C. Wilkes, 52, has been FloridaFirst Bank's President, Director and
Chief Executive Officer since 1995. From 1990 to 1995, Mr. Wilkes was employed
by Home Federal Savings Bank in Rome, Georgia, where he served as President,
Director and Chief Executive Officer. He currently serves as the Chairman of
Lakeland Chamber of Commerce and also serves as a board member for the Lakeland
Chamber of Commerce, Lakeland Rotary Club, Polk Theatre, the YMCA, the Salvation
Army, the Florida Southern College President's Council, and the Lakeland
Regional Hospital Foundation. In addition, Mr. Wilkes is the elected director
from the State of Florida for the Federal Home Loan Bank of Atlanta, a member of
the board of the Florida Bankers Association and a board and faculty member of
the Florida School of Banking.
Llewellyn N. Belcourt, 69, has been a Director of FloridaFirst Bank since 1989.
Mr. Belcourt is a shareholder, Director and Vice President of Carter, Belcourt &
Atkinson, P.A., an accounting firm located in Lakeland, Florida. He is Treasurer
and a Board member of the Community Foundation of Greater Lakeland and Finance
Committee Chairman and a Board member of the Lakeland Regional Medical Center
Foundation.
J. Larry Durrence, 61, was elected a Director of the Bank on January 28, 2000.
Dr. Durrence is President of Polk Community College with campuses in Polk
County, Florida. He is active with the United Way, Polk Museum of Art,
Volunteers in Service to the Elderly, Polk Economic Education Council, Polk
Leadership & Learning Academy, Polk County Workforce Development Board, Polk
County Career/Technical Education Task Force, AACC Commission on Economic
Workforce Development, and Heart Fund Walk.
75
Stephen A. Moore, Jr., 58, has been a Director of FloridaFirst Bank since
February 1998. Mr. Moore is President, Director and majority stockholder of
Moore Business Service, Inc., an accounting firm located in Lakeland, Florida.
He has been with Moore Business Service, Inc. since 1974. Mr. Moore is also a
member of the Lakeland Rotary Club, a Director and officer of the Central
Florida Speech & Hearing Center, and a Board member of the Polk Community
College Foundation.
G. F. Zimmermann, III, 56, has been a Director of FloridaFirst Bank since 1993.
Mr. Zimmermann is President and majority stockholder of Zimmermann Associates,
Inc., a building design firm located in Lakeland, Florida, which he has been
with since 1974. He has been active with the Salvation Army, the Kiwanis Club of
Lakeland, the Lakeland Kiwanis Foundation and the Chamber of Commerce. He also
has served as a member of the Habitat for Humanity Board of Directors, the City
of Lakeland Civil Service Board, the Pension Board, the Arbitration Board and
the Lakeland Regional Medical Center Community Board.
Executive Officers Who Are Not Directors
Don A. Burdett, 54, joined FloridaFirst Bank as Senior Vice President of Retail
Banking in November 1998. Prior to joining FloridaFirst Bank, Mr. Burdett served
as a market executive and held various sales management positions at Barnett
Bank from 1979 to 1998. Mr. Burdett has completed various graduate banking
programs during his career. Mr. Burdett has held leadership positions in the
Clearwater Chamber of Commerce, Suncoast Junior Achievement, Eastlake Optimist
and has participated in both the Leadership Manatee and Leadership Lakeland
Programs.
Kerry P. Charlet, 47, has been Chief Financial and Operations Officer of
FloridaFirst Bank since March 1998. Prior to joining FloridaFirst Bank, Mr.
Charlet served in various positions from 1986 to 1994 at Florida Bank, FSB,
including Executive Vice President and Chief Financial Officer. He was also
employed by AmSouth Bank of Florida from 1995 to 1998, where he served as Senior
Vice President and Chief Financial Officer. Mr. Charlet has also served as an
officer and committee chairman for the Gator Bowl Association, Chairman of
Payment Systems Network, and president and board member of various youth
basketball organizations.
William H. Cloyd, 43, has been Chief Lending Officer of FloridaFirst Bank since
January 1998. Previously, Mr. Cloyd was Senior Vice President of Sun Trust Bank
Mid-Florida, N.A. He has also been active with the United Way, the Lakeland
North Rotary Club, the Lakeland Chamber of Commerce, and has served as Chairman
of the Lakeland Downtown Development Authority.
Marion L. Moore, 60, serves as Senior Vice President of Deposit Administration
for FloridaFirst Bank and Mr. Moore has been employed at FloridaFirst Bank since
1984. He has also been active with the Rotary Club, the Boy Scouts of America,
the Lakeland Chamber of Commerce and the Winter Haven Chamber of Commerce.
76
Item 11. Executive Compensation
- --------------------------------
Director Compensation
During 2000 each director was paid a fee of $1,000 for each board meeting
attended and each director emeritus was paid $667 per board meeting. The
chairman of the board receives an additional $1,500 fee for each board meeting.
Each non-management director was paid $200 for each committee meeting attended.
The total fees paid to the directors for the year ended September 30, 2000 were
approximately $156,300.
In addition, the Bank has adopted a Directors Consultant and Retirement Plan for
all directors following retirement and completion of at least 10 years of
service. If a director agrees to become a consulting director to our board after
retirement, he or she will receive a monthly payment equal to the Board fee in
effect at the date of retirement, currently $1,000 per month, for a period of
120 months. Benefits under such plan will begin after a director's retirement.
If there is a change in control, all directors will be presumed to have not less
than 10 years of service and each director will receive a lump sum payment equal
to the present value of future benefits payable. During fiscal 2000, $18,000 was
paid to former directors under the plan.
On October 19, 1999 under the stock option plan and the restricted stock plan,
each director was awarded stock options and restricted stock plan shares. Under
the stock option plan, each director was granted options to purchase shares of
common stock at $8.50 per share. Under the restricted stock plan, each director
was awarded shares of common stock. Option shares and restricted stock plan
shares are exercisable at the rate of 20% per year commencing on October 19,
2000. Under the option plan and restricted stock plan, Mr. Wilkes received
63,785 options and 27,038 restricted stock plan shares. All non-employee
directors, except Mr. Durrence, each received 10,800 options and 4,635
restricted stock plan shares. In accordance with the restricted stock plan,
dividends are paid on shares awarded or held in the restricted stock plan.
77
Executive Compensation
Summary Compensation Table. The following table sets forth the cash and non-cash
compensation awarded to or earned, for services rendered by the named executive
officers of the Company for each of the three years ended September 30, 2000 No
other executive officer of the Company had a combined salary and bonus that
exceeded $100,000.
Long-Term Compensation
Annual Compensation Awards
-------------------------------------- ------------------------------
Restricted Securities
Name and Fiscal Other Annual Stock Underlying All Other
Principal Position Year Salary($) Bonus($) Compensation Award(s)($)(1) Options #(2) Compensation($)
- ------------------ ---- --------- -------- ------------ -------------- ------------ ---------------
Gregory C. Wilkes, 2000 $201,440 - $ 13,000 $229,823 63,785 $ 78,300 (3)
President 1999 185,400 $ 3,875 13,000 - - 133,000
Chief ExecutiveOfficer 1998 164,500 2,400 13,000 - - -
Kerry P. Charlet,
Senior Vice President 2000 127,370 10,000 - 153,000 32,500 48,500 (4)
Chief Financial Officer 1999 113,125 22,838 - - - 44,800
1998 61,875 - - - - -
William H. Cloyd,
Senior Vice President 2000 113,500 5,000 - 127,500 25,000 46,000 (5)
Chief Lending Officer 1999 102,500 11,659 - - - 42,800
1998 68,700 - - - - -
- -------------
(1) For Messrs. Wilkes, Charlet and Cloyd represents awards of 27,038, 18,000
and 15,000 shares of common stock, respectively, under the RSP as of
October 19, 1999 on which date the market price of such stock was $8.50
per share. Such stock awards become non-forfeitable at the rate of 20%
shares per year commencing on October 19, 2000. Dividend rights associated
with such stock are accrued and held in arrears to be paid at the time
that such stock becomes non-forfeitable. As of September 30, 2000, for
each of the named executive officers, all shares remain unvested. Based
upon a market price of $12.06 per share as of September 30, 2000, such
unvested shares for Messrs. Wilkes, Charlet and Cloyd had a market value
of $326,100, $217,100 and $180,900, respectively.
(2) Such awards under the 1999 Stock Option Plan are first exercisable at the
rate of 20% per year commencing on October 9, 2000. The exercise price
equals the market value of the common stock on the date of grant of $8.50.
See "-- Stock Awards".
(3) Includes $59,000 related to an accrual under the supplemental executive
retirement plan; approximately 1,400 shares of Common stock scheduled to
be allocated under the employee stock ownership plan at a cost basis of
$10.00 per share (such shares had an aggregate market value at September
30, 2000 of $16,900; and $5,300 in Company matching funds in the 401(k)
retirement plan.
(4) Includes $33,000 related to an accrual under the supplemental executive
retirement plan; approximately 1,100 shares of Common stock scheduled to
be allocated under the employee stock ownership plan at a cost basis of
$10.00 per share (such shares had an aggregate market value at September
30, 2000 of $13,266; and $4,500 in Company matching funds in the 401(k)
retirement plan.
(5) Includes $33,000 related to an accrual under the supplemental executive
retirement plan; approximately 975 shares of Common stock scheduled to be
allocated under the employee stock ownership plan at a cost basis of
$10.00 per share (such shares had an aggregate market value at September
30, 2000 of $11,759; and $3,300 in Company matching funds in the 401(k)
retirement plan.
78
Employment Agreements. The Bank has entered into separate employment agreements
with Messrs. Wilkes, Charlet and Cloyd. Messrs. Wilkes', Charlet's and Cloyd's
current base salaries under their employment agreements are $200,000, $132,000
and $120,000, respectively. Messrs. Wilkes' and Charlet's employment agreements
have a term of three years, while Mr. Cloyd's agreement has a term of two years.
The agreements may be terminated by the Bank for "just cause" as defined in the
agreement. If the Bank terminates any of these three individuals without just
cause, they will be entitled to a continuation of their salary from the date of
termination through the remaining term of the agreement, but in no event for a
period of less than one year. The employment agreements contain a provision
stating that after Messrs. Wilkes', Charlet's or Cloyd's employment is
terminated in connection with any change in control, the individual will be paid
a lump sum amount equal to 2.99 times his five-year average annual taxable cash
compensation. In the event of a change in control as of September 30, 2000,
Messrs. Wilkes, Charlet and Cloyd would have received approximately $509,300,
$408,600 and $347,800, respectively.
Supplemental Executive Retirement Plan. The Bank has implemented a supplemental
executive retirement plan for the benefit of Messrs. Wilkes, Charlet and Cloyd.
The supplemental executive retirement plan will provide benefits at age 65 that
would be comparable to approximately 83% of the benefits that would have accrued
under the terminated pension plan after retirement at age 65. If a participant
terminates employment prior to age 65, then the target retirement benefits will
be reduced. The accumulated deferred compensation account for each participant
will be payable to such participant at anytime following termination of
employment after attainment of age 55, the death or disability of the
participant, or termination of employment following a change in control of the
Bank whereby the Bank or its parent company is not the resulting entity. For the
fiscal year ended September 30, 2000, Messrs. Wilkes, Charlet and Cloyd had
accrued supplemental executive retirement plan benefits of approximately
$59,000, $33,000, and $33,000, respectively, and such benefits for the
individuals were not vested.
79
Stock Awards. The following table sets forth information with respect to
previously awarded stock options to purchase the Common Stock granted in 1999 to
the named executive officers and held by them as of September 30, 2000. The
Company has not granted to the named executive officers any stock appreciation
rights ("SARs").
OPTION GRANTS TABLE
Option Grants in Last Fiscal Year
---------------------------------
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Term(1)
----------------- --------------
% of Total
# of Securities Options
Underlying Granted to Exercise
Options Employees in Price Expiration
Name Granted(#) Fiscal Year ($/Sh) Date 5% 10%
- ---------------------- ---------- ----------- ------ -------------------- ---------- ----------
Gregory C. Wilkes 63,785 32.7% $8.50 October 19, 2009 $710,850 $1,453,056
Kerry P. Charlet 32,500 16.7 8.50 October 19, 2009 362,195 740,367
William H. Cloyd 25,000 12.8 8.50 October 19, 2009 278,612 569,513
- -------------------
(1) The amounts represent certain assumed rates of appreciation only over a
ten-year period. Actual gains, if any, on stock option exercises and
Common Stock holdings are dependent on the future performance of the
Common Stock and overall stock market conditions. There can be no
assurance that the amount reflected in the table will be achieved. The
values in the table are based upon the exercise price of $8.50 and the
closing price of $12.06 at September 30, 2000.
OPTION EXERCISES AND YEAR END VALUE TABLE
Aggregated Option Exercises in Last Fiscal Year, and FY-End Option Value
------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-The-Money Options
at FY-End (#) at FY-End ($)(1)
------------- ----------------
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- --------------- ------------ ------------------------- -------------------------
Gregory C. Wilkes -- -- -- / 63,785 -- / $227,075
Kerry P. Charlet -- -- -- / 32,500 -- / 115,700
William H. Cloyd -- -- -- / 25,000 -- / 89,000
- ------------------
(1) Information is based on the exercise price of $8.50 and the closing price
on September 30, 2000 of $12.06.
80
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The following table sets forth as of December 22, 2000, persons or groups who
own more than 5% of the Common Stock and the ownership of all executive officers
and directors of the Company as a group. Other than as noted below, management
knows of no person or group that owns more than 5% of the outstanding Common
Stock.
Shares of
Common Stock Percent
Name Beneficially Owned (1) of Class(%)
- ----------------------------------- ---------------------- -----------
Nis H. Nissen, III 40,989 - (4)
Gregory C. Wilkes 63,087 1.13 %
Llewellyn N. Belcourt (2) (3) 9,347 - (4)
J. Larry Durrence (3) 206 - (4)
Stephen A. Moore, Jr. 51,956 - (4)
G. F. Zimmermann, III (2) (3) 15,571 - (4)
Kerry P. Charlet (2) 38,462 - (4)
William H. Cloyd 13,591 - (4)
All directors and officers of the Company as a
group (10 persons) 250,628 4.51 %
(1) The share amounts include shares of Common Stock that the following persons
may acquire through the exercise of stock options at December 22, 2000: Nis
H. Nissen, III - 2,229, Gregory C. Wilkes - 13,166, Llewellyn N. Belcourt -
2,229, Stephen A. Moore, Jr. 2,229, and G.F. Zimmermann, III - 2,229, Kerry
P. Charlet - 6,709 and William H. Cloyd - 5,161. Mr. Durrence shares
include no shares that be acquired through the exercise of stock options.
See "Director and Executive Officer Compensation - Director Compensation."
(2) Excludes 188,956 unallocated shares under the employee stock ownership plan
("ESOP") for which such individuals exercise shared voting and investment
power with respect to such shares as a member of the ESOP Trust and/or ESOP
Planning Committee. Such individuals disclaim beneficial ownership with
respect to such shares held in a fiduciary capacity.
(3) Excludes 38,964 restricted stock plan shares which were previously awarded
but subject to forfeiture for which such individuals exercise shared voting
and investment power with respect to such shares as a member of the
restricted stock plan committee. Such individuals disclaim beneficial
ownership with respect to such shares held in a fiduciary capacity.
(4) Less than 1% of the common stock outstanding.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
No directors, executive officers or immediate family members of such individuals
were engaged in transactions with us or any subsidiary involving more than
$60,000, other than through a loan, during the years ended September 30, 2000
and 1999. Furthermore, the Bank had no "interlocking" relationships in which:
o any executive officer is a member of the board of directors of another
entity, one of whose executive officers are a member of The Bank's board of
directors; or where
o any executive officer is a member of the compensation committee of another
entity, one of whose executive officers is a member of The Bank's board of
directors.
The Bank has followed the policy of offering residential mortgage loans for the
financing of personal residences and consumer loans to its officers, directors
and employees. Loans are made in the ordinary course of business and also made
on substantially the same terms and conditions, including interest rate and
collateral, as those of comparable transactions prevailing at the time with
other persons, and do not include more than the normal risk of collectibility or
present other unfavorable features.
81
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- --------------------------------------------------------------------------
(a) (1) Financial Statements:
See Item 8.
(a) (2) Financial Statement Schedules:
All financial statement schedules have been omitted as the information
is not required under the related instructions or is inapplicable.
(a) (3) Exhibits:
Exhibit
Number Document
------ --------
3(i) Articles of Incorporation of FloridaFirst Bancorp, Inc.*
3(ii) Bylaws of FloridaFirst Bancorp, Inc.*
4 Specimen Stock Certificate of FloridaFirst Bancorp, Inc.*
10.1 Employment Agreement with Gregory C. Wilkes*
10.2 Form of Employment Agreement with Four Officers of the Bank*
10.3 1999 Stock Option Plan **
10.4 Restricted Stock Plan **
21 Subsidiaries of Registrant (See Item 1 - Description of the Business)
27 Financial Data Schedule (electronic filing only)
* Incorporated by reference to the Registrant's Registration Statement on
Form S-1 initially filed with the Commission on September 5, 2000 (File No.
333-45150).
** Incorporated by reference to the identically numbered exhibits to the Form
10-K filed by FloridaFirst Bancorp on December 29, 1999 (File No. 0-25693).
(b) Reports on Form 8-K:
The following reports on Form 8-K were filed by FloridaFirst Bancorp
during the period covered by this report.
Date of Report Subject
-------------- -------
July 25, 2000 A plan of conversion was entered into by
FloridaFirst Bancorp to convert to a Full
stock company.
82
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FLORIDAFIRST BANCORP, INC.
Date: December 29, 2000 By: /s/Gregory C. Wilkes
-------------------------------------
Gregory C. Wilkes
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated as of December 29, 2000.
/s/Gregory C. Wilkes /s/Kerry P. Charlet
- ------------------------------------- --------------------------------------------
Gregory C. Wilkes Kerry P. Charlet
President and Chief Executive Officer Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/Nis H. Nissen, III /s/Stephen A. Moore, Jr.
- ------------------------------------- --------------------------------------------
Nis H. Nissen, III Stephen A. Moore, Jr.
Chairman of the Board Director
/s/Llewellyn N. Belcourt /s/G. F. Zimmermann, III
- ------------------------------------- --------------------------------------------
Llewellyn N. Belcourt G. F. Zimmermann, III
Director Director
/s/J. Larry Durrence
- -------------------------------------
J. Larry Durrence
Director